UK insurers: here comes the rain

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It never rains but it pours. Having been hit last week by big changes to the way savers can use their pension pots, the UK insurance industry was this week told of a cap on charges for work pensions. And on Friday came news of a regulatory investigation into how it deals with customers who bought policies years ago. Given the regulatory interest, executives must be starting to get an idea of what it is like to run a bank.

Tough times, too, for anyone who invested in the insurers. They should be the dullest of dull investments, offering a modicum of share price growth as the economy improves and a healthy dividend. Well, so much for that theory. In the past month, shares in Legal & General are down 14 per cent, Resolution 20 per cent and Phoenix 12 per cent.

The latest investigation will try to work out whether people who bought life assurance policies long ago have been getting a raw deal since. It will look at information given to customers, service levels and whether the investment is still appropriate. It can be difficult for the holders of old policies to switch to other insurers, so they can be stuck with a raw deal. This will not be a quick or easy process. And even if problems are uncovered, it is unclear what the cost to the industry could be. But the payment protection insurance scandal – in which banks have paid out £13.6bn for mis-sold policies – is an uncomfortable reminder of how expensive these investigations can be.

The message of the past two weeks goes beyond the specific changes and investigations that are under way, however. Regulators now have the insurers in their sights. Any company that looks like it is doing too well (or even paying too generous a dividend) will attract attention. Insurers should use this opportunity to overhaul what they sell and how they sell it. This is an industry, remember, that thinks “with profits” is a helpful name for a product. The offering – and the charges – will have to be more straightforward. Making sure consumers understand what is involved will have to go a long way beyond box ticking and small print. The insurers are on warning. More rain to come.

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