The only guaranteed lump sum the endowment market is set to provide is the one insurers are going to pick up, as fines and compensation levies are totted up for the mis-selling of policies.
Guesses at the ultimate cost have varied wildly, and it seems various attempts are being made to provide a concrete estimate as claims continue to arrive at the Financial Services Authority (FSA) daily, and a proposed extension to the rules governing the period of time allowed to make a claim has only recently been announced.
The FSA has been ‘working with’ 23 insurers and between them a total of £330m has been put aside, which they hope will cover the compensation costs for those affected. Of these companies, only Winterthur Life and Royal Scottish Assurance have been named and they have already been heavily fined and put aside a total of £60m to pay compensation. This is part of the £330m that has been put aside by the 23 companies.
It is not only the insurers themselves that have been affected, but also those independent financial advisers (IFA) who offered advice on the products. Like the majority of the insurers, they have remained anonymous despite the fact that claims are being made against them. How badly they are affected remains to be seen, although indirectly the entire IFA market is suffering as professional indemnity insurance costs spiral.
Over and above the £330m that has been set aside by the insurers working with the FSA, a spokeswoman for the organisation said a further 42,000 complaints had been received, which would be receiving redress of £139m.
This figure can only be set to rise with the FSA’s recent decision to allow consumers more time to make their complaint ‘ should they have one. Normally, the Financial Ombudsman Service is unable to consider those cases referred to it more than three years after the date a complainant first discovered a loss. This date has been taken, in many cases, to be the time at which a policyholder received their first re-projection letter. However, under the proposed changes, the clock would not start ticking unless the projection letter was red ‘ indicating a likely shortfall. Green letters, indicating the need for the policy to grow at no more than 6% to keep on target and amber letters, indicating a possible shortfall, would not count as clock starters. Once the clock has started the proposed period within which a claim has to be made remains at three years.
Both the Financial Services Consumer Panel and The Consumers’ Association welcomed the move. However, for insurers and IFAs it has meant uncertainty over the compensation totals involved and possible fines that could drag on for years. It seems, therefore, that any figures suggested by either industry bodies or the media are guesswork at best. If the Consumer’s Association is right about a possible 5m people being mis-sold endowment policies, all current predictions will not even look like the VAT contribution to the total bill.