Little value but still big sellers

Armies of salespeople do the trick

Anyone not versed in the machinations of the insurance industry might assume that life companies charging the most for the policies they sell are also the ones with the worst business figures. In fact, logic is turned on its head.

The most recent survey by Money Management, a specialist magazine, shows that Prudential, which consistently scores among the poorest performers, grabbed pounds 446m of new premium income in 1995, more than any other insurer. Yet it has an average CCC rating across its products.

Allied Dunbar also came within the top 10 for new premium income, as did Sun Life and Legal & General. Barclays Life, not noted for its low charges, took pounds 89.8m, placing it in the top 20, pipping NatWest, Black Horse Abbey National, Midland and TSB, all of which still vacuumed up large amounts of policyholders' money.

What marks most of these companies out is not their competitiveness but one asset which allows them to transcend such minor questions - a large salesforce. In most cases, if an insurer has a small army pounding the streets and selling policies, it can remain relatively insulated from the need to offer competitive products. Prudential, for example, has a 7,000-strong salesforce which notched up 64 per cent of its business.

Also instructive is how sales are divided across different types of policies. The Pru sold only 29 per cent of its regular-premium pensions through independent financial advisers, who tend to scrutinise the value of these policies. The rest was sold by its own salespeople.

A handful of companies popular among independent financial advisers, such as Scottish Amicable, Standard Life and Norwich Union, also scored well in the premium income league.

While some of the companies picked by IFAs, notably Norwich Union and Standard Life, are in the top five for their charges, others are not. This reveals an uncomfortable truth about advisers: sometimes they may be affected more by commissions paid or the bells and whistles on a policy than whether it is good value overall.

One notable exception to all this is Equitable Life, a company that sells almost exclusively through its salesforce. The excellent value of its products ensured that it came second in terms of new income in 1995, just behind the Pru.

However, much of its premium income came from the large company pension funds it manages. Which leads to the final question: if its charges are so good why is it that the company's products are not sold by IFAs? Because it refuses to pay them commission, thus guaranteeing that hardly any will recommend its products.