THOUSANDS of islanders could be making costly mistakes because insurance companies are not transparent, according to the UK’s Financial Services Authority.
The FSA has said firms need to ‘significantly improve’ communication so customers can make informed decisions.
In Guernsey, Gower Group managing director Jeff Barnett said the criticism came as no surprise.
‘Anyone concerned should seek expert, independent advice and consider switching to alternatives such as retirement and annuity trusts (Rats),’ he said.
‘These tend to be more transparent and flexible than standard insurance company pensions.’
Jersey has recently amended its income tax legislation to allow Rats. Prior to that, they were available in Guernsey only.
Although there are no longer any insurance providers offering traditional schemes here, they were the preferred option for most islanders and local companies until last year.
Mr Barnett said lack of transparency where fees and investment performance were concerned had long been a major issue.
‘We see lots of islanders who have taken out policies in the past who really have no idea what investment performance they are getting or what fees they are being charged. Nor are they receiving any advice on the ongoing suitability of these products based on their current personal circumstances.
‘Most worryingly of all, many of these people have been given little in the way of advice in terms of planning for retirement and what income they can look forward to.
‘Although in the past Rats were mainly limited to wealthy individuals, the emergence of multi-partner schemes means they are now a viable option for many islanders.’
The FSA’s comments were contained within its Financial Risk Outlook 2008, which covers all areas of the UK investment industry.
Guernsey Financial Services Commission director-general Peter Neville said considerable importance was attached to all islanders being given suitable and fair advice.
‘Local intermediaries, whom the GFSC licenses, play a pivotal role in protecting the interests of their clients,’ he said.
‘Our code of conduct, which applies to authorised insurance representatives advising on long-term and general business, requires them to meet recognised standards of professional conduct in their clients’ best interests.’
The law and regulations that apply to local insurance managers and intermediaries are being strengthened to protect policyholders. Changes include increasing intermediaries’ minimum capital requirement and defining what assets count towards solvency requirements.
The GFSC is also enhancing its reporting requirements and introducing a formal obligation to appoint a compliance officer or compliance function.
The requirement for licensees to implement robust training and competence schemes is being bolstered and customer complaints and money handling regulations are also being improved.
‘Following the withdrawal of life companies offering insured pension products in the Bailiwick, there has been an increased interest in the promotion of Rats,’ said Mr Neville.
‘People thinking of entering into such transactions must be properly advised and be fully aware of the associated charges and ongoing costs.
‘With these concerns in mind, the GFSC formed a working party last year consisting of members drawn from the commission and the insurance community to examines Rats with a view to developing best practices for their sale to islanders.’
Loading ...
Share this article:
What are these?