Insurance Bosses under Fire over Savings Risks

By David Winning, City Staff, PA News

Insurance bosses today came under fire from MPs for failing to highlight clearly the risks involved in investments such as endowment mortgages. Appearing before the Treasury Select Committee, the heads of Aviva, Prudential, Legal & General and Standard Life conceded the savings process was too complicated at present. Consumers currently made investment decisions using a 20-page document setting out the key facts which MPs likened to a novel and an encyclopaedia. “Can we get to a point where the customer can pick up a brochure, look at it and see at a glance how risky a product is?” urged James Plaskitt, Labour MP for Warwick and Leamington. Solutions suggested by MPs included standardised risk ratings and a summary box on the front of the document that stressed the balance between risk and potential rewards. Angela Eagle, Labour MP for Wallasey, called for a traffic light system where the riskiest investment was marked in red. In response, the chief executives said it was essential for the reputation of the financial services industry that consumers “get what they are expecting”. However, Aviva chief executive Richard Harvey said the use of red as a warning might put consumers off potentially lucrative investments and make them overcautious. The insurance industry was working with the Financial Services Authority to make guidance clearer, he added. The chief executives said consumers had to shoulder some of the responsibility when stock markets fell and the value of their savings collapsed. Legal & General chief executive David Prosser trumpeted the value of independent advice and said: “I don’t believe consumers are stupid but are capable of making decisions.” He added: “People need to understand the product, but where that product fits in terms of their aspirations and their future life is best left to them.” During the questioning, the chief executives were accused of having a “cosy relationship” with Independent Financial Advisers (IFAs) that sold their products. This led to many consumers being stung for high commission rates on products that were unsuitable, something the chief executives denied. “Is advice merely a euphemism for selling?” said Robert Walter, Conservative MP for North Dorset. The reputation of the financial services industry has been dented this year by criticism over the way products were sold and how people were kept informed about their investments. Around 80% of the 8.5 million endowment policies still in force are unlikely to pay off the mortgages for which they were taken out, with average shortfalls of £5,500. Committee chairman John McFall, the Labour MP for Dumbarton, said it was important that watchdog Financial Services Authority (FSA) was given a higher profile as “a number of consumers may not even have heard of it.” His comments came as the FSA said it was changing its rules to require firms explicitly to warn people with endowment policies when their right to complain about mis-selling expires. Today’s move was described as “long overdue” by the Consumers’ Association, estimating that thousands of people may be in the dark about the time-bars.