Life InsuranceFeb 16 2017

ABI under fire for pulling plug on simpler products

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ABI under fire for pulling plug on simpler products

The Association of British Insurers has abandoned their simple products initiative that followed the 2013 Sergeant Review.

The review, which was undertaken by a steering group led by former Financial Services Authority managing director Carol Sergeant, recommended the introduction of a “simple financial products badge for qualifying products via a robust accreditation process”.

This would be applied to a range of new ‘simple’ products, including an easy access savings account, a 30-day notice savings account, a regular savings account and a fixed-term life insurance product. 

The review also recommended the introduction of a new whole-of-life insurance product, but said there was a need for further consultation with the Association of British Insurers.

Following the review’s recommendations the Association of British Insurers, British Bankers' Association and Building Societies Association collectively supported the Simple Products initiative.

However FTAdviser can exclusively reveal that four years on from making that commitment the Association of British Insurers has pulled the plug on their work to explore how Ms Sergeant’s recommendations could be made to work. 

A spokesman for the ABI said the trade body had committed considerable time and resources to the simpler products initiative. 

He said: “However, after four years of hard work, the environment has changed considerably, and better and more effective mechanisms have emerged to deliver on the aims of the Sergeant review. 

“The recommendations of the Financial Advice Market Review, in particular on rules of thumb, are designed to help individuals access basic products through a non-advised route. 

“We believe that the industry and all stakeholders should remain focused on these work streams rather than continue to dedicate resources to the simple products initiative.”

However Sue Lewis, chairman of the Financial Services Consumer Panel, said she does not believe the FCA’s work on cash savings and the Financial Advice Market Review would address the need for simpler products.

She said: “There have been many attempts at driving simplification, including ‘stakeholder’ products and CAT (charges, access and terms) standards.

“The industry will not produce straightforward, easy to understand, value for money products because it does not make enough money out of them.

“The stakeholder pension was moderately successful, but only because it was in effect forced on the industry by the FSA making a rule (known as ‘RU64’[1]), saying that, in order to sell a pension more complicated or expensive, the seller had to explain to the customer why the additional costs and features were justified.

“The stakeholder child trust fund was also successful, possibly because the options were clearly set out for parents and the charges were capped, at 1.5 per cent (which looks high now but wasn’t at the time).”

Ms Lewis said the problem the ABI’s simpler products initiative was intended to fix are getting worse.

She said: “Financial products are more complex. There is generally too much choice, rather than too little. Terms and conditions are lengthy and incomprehensible and many products have hidden fees and charges.

“One thing is clear: industry will not solve these issues without intervention, whether it is a regulatory ‘RU64’ type approach, or a statutory duty of care to force firms to ensure their customers really understand what they are buying and what it will cost them.”

Patrick Connolly, certified financial planner at Chase de Vere and winner of Unbiased’s Financial Adviser of the Year title, said in theory having very simple financial products should make people more engaged and more confident in terms of understanding their finances.

However, he said this approach has been tried before with CAT (cost, access, terms) standard products and also with stakeholder pensions, which are simple but not flexible, and neither of these proved particularly successful.

Mr Connolly said: “People want more choice and more flexibility, but with that comes more complexity and a greater likelihood that they will make the wrong decisions.

“This opens up the need for advice, because the decisions people are taking are often too important to get wrong. This should be independent financial advice and could be facilitated through employers, which can make it accessible to more people.

“Unfortunately, we currently have a system with complicated products and ever-changing rules and regulations, where too many people are encouraged to make their own financial decisions. This sounds like a recipe for potential disaster.”

emma.hughes@ft.com