An inquiry, due to begin in August, may allow long-term savers, deemed to be locked into rip off pensions and investments to be given a free exit from their scheme, or moved on to a better deal.
The FCA told The Daily Telegraph that at the heart of its investigation is an “unfairness” whereby some insurers use the returns from closed funds to pay bills from other parts of its business.
It said it was concerned that insurers are now “exploiting” loyal customers, adding they are “not given the same priority as new customers” and face high fees and poor service.
The review will look at 30 million policies sold from the 1970s to the turn of the Millennium including pensions, endowments, investment bonds and life insurance.
It will look at whether the exit fees for closed insurance products are too high and therefore discouraging holders from moving their business.
The FCA said it fears insurance companies are no longer managing long term customers’ money carefully due to a so called 'lack of engagement' from them.
The inquiry will be formally anounced on Monday when the FCA publishes its annual business plan.
Clive Adamson, the FCA’s director of supervision, told The Daily Telegraph: “We want to find out how closed-book products are being serviced by insurance companies, as we are concerned insurers are allocating an unfair amount of overheads to historic funds.”
It said the inquiry will not investigate selling practices or workplace pension plans offered by employees.
The banning of exit fees on old policies is a measure being considered following the inquiry. However, the FCA does not itself have the authority to enforce this.
Right thing to do
It has not yet been specified whether the inquiry will extend to offshore policies, but Sam Instone, chief executive at AES International, said the limited regulatory scope of the FCA means the announcement should not be a global issue.
“The inquiry is the right thing for the FCA to do,” he said, “However, financial advisers around the world probably do not need to worry as most of them are not regulated by the FCA.
“There are only three international firms that are FCA regulated and they would not sell these kinds of products.
“These companies are driven by their global brand and as such have adopted a responsible plan and are therefore compliant to FCA requirements.
“However, global life insurance companies that are not driven in such a global way do not have such regulatory requirements and will continue to sell these types of products until they are no longer legally able to.”
Very serious
Hugh Savill, director of regulation at Association of British Insurers, said: “Companies take their treating customers fairly obligations very seriously.
“Company Boards will regularly review all aspects of product design, customer servicing and product performance. This is as relevant to older product lines as it is to new ones.
“We will of course work closely with the FCA as they undertake this review.”
