Insurers face exit fees investigation
Major insurers are being put under the spotlight after a regulator found that customers may have been unaware of life insurance exit fees.
The Financial Conduct Authority (FCA) said it had found examples of poor practice in the treatment of customers with so-called zombie policies.
These are held by long-standing clients and are closed to new customers.
The FCA is worried about how exit fees and charges were explained to customers.
These included "paid-up fees", where customers stop paying premiums but are still in the policy.
The fresh investigation will focus on the explanation of charges after December 2008 at six firms - Abbey Life, Countrywide, Old Mutual, Police Mutual, Prudential and Scottish Widows.
"The FCA is concerned that some customers may potentially have been unaware that they would have to pay such a charge or that they have paid, or are paying, such a charge," the FCA said.
Capping or cutting fees
The regulator has been conducting a long-running review into the life insurance sector. It investigated insurance products including pensions, endowments, investment bonds and life insurance policies.
The average value for policies in the FCA's sample of the sector was approximately £18,000 for an endowment policy and £23,000 for a personal pension policy.
The regulator looked particularly at policies which penalised savers who wanted to switch providers. It considered how customers were being treated now, rather than when the policies were sold.
It found that some insurers might have failed to tell customers of the exit charges at the time they were incurred.
This will now lead to a further investigation. The regulator stressed that no conclusions had been drawn, such as whether customers suffered financial setbacks as a result.
The FCA said it would also work to improve firms' behaviour generally, with plans to reach a voluntary agreement with the industry to capping or removing some charges.
Hugh Savill, director of regulation at the Association of British Insurers (ABI), said: "This review raises various issues and we will study it in detail before responding more fully.
"However it should be noted that products sold today bear little resemblance to those described by the report. The long-term savings industry is now modernising and focussed on serving its customers, through auto-enrolment pension products or helping them make the most of the new pension freedoms."
The original announcement of the investigation caused a huge headache for the FCA.
Information about the inquiry was pre-briefed to the Daily Telegraph, causing insurers' share prices to fall, and the FCA came in for heavy criticism over its handling of the announcement.
An independent report into the affair found that the FCA's strategy was "high-risk, poorly supervised and inadequately controlled".
Four top executives at the Financial Conduct Authority (FCA) lost their bonuses as a result. Two more senior figures, who were heavily criticised in the report, had already stepped down by the time the report was published.