UK insurers slump after new blow

UK Insurance stocks were reeling again today after it emerged the City watchdog is to investigate policies which penalise people who want to switch providers.

The review by the Financial Conduct Authority (FCA), which is to begin this summer, will include pensions, endowments, investment bonds and life insurance and cover 30 million policies sold between the 1970s and 2000.

It follows concern that loyal policyholders are not being given the same priority as new customers and instead face high exit fees and substandard service.

In a session when the FTSE 100 Index rose 2.1 points to 6590.3, insurance-based stocks occupied the first six places on the blue-chip fallers board.

The move is a fresh blow for the industry just a week after the Chancellor gave pensioners the freedom to draw down as much or as little of their pension pot as they want, removing the need to buy an annuity.

The latest probe comes as the FCA said it feared there was unfairness whereby some insurers use the returns from so-called “zombie” funds – which are shut to new customers and often neglected by existing clients – to pay bills from other parts of their businesses.

It is thought the FCA could consider banning exit fees on old policies, or asking firms to move customers to better products, increasing investment in the management of old funds, or cutting fees.