UK to review how insurers treating customers that have bought ‘with-profits’ policies

The UK’s markets watchdog says it will review how insurers are treating customers that have bought ‘with-profits’ policies that contain guaranteed returns.

In a with-profits policy, the insurers’ costs are deducted from the investment profits of the fund and the remainder returned to investors.

The policies typically have guarantees and are no longer offered widely by insurers.

The Financial Conduct Authority said the last full review that focused on with-profits business was in 2010.

“The forthcoming review into the fair treatment of with-profits customers will allow us to understand further the range of practices that are now being adopted by firms,” the authority said in a statement.

One practice in particular that is likely to be a focus is ‘smoothing’, which aims to even out the ups and downs of markets. The inclusion of guarantees will also be looked at. The announcement of a review may raise expectations that potential enforcement action or changes in practices will follow.

“We do not have pre-determined views about whether any particular practices are unfair or are leading to unfair outcomes and have not drawn any conclusions about whether with-profits customers are being unfairly treated,” the watchdog said.

The 2010 review found that the majority of firms “did not satisfactorily demonstrate” that their practices were consistent with well-run with-profits businesses in one or more areas assessed.

Dutch insurers Aegon and NN were this month told to compensate some customers for inadequacies when the firms sold investment-linked policies in the 1990s and 2000s. “One of our priorities is firms’ treatment of existing customers. This review into the fair treatment of with-profits customers, included in our 2017-2018 business plan, is a key part of this programme of work, the authority said.

“With-profits policies are an investment type offered by some life insurance companies. Money from each investor is pooled with that of other investors in a company’s with-profits fund.

“A with-profits fund usually invests in a range of different assets including shares, fixed interest securities, cash and property,” it said.

It said that the review would begin in the first quarter next year at the latest. n Reuters

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