Essentially, life companies have missed the point. So determined have they been to comply with the letter of the new rules, that they have failed to address the bigger issue. That is, how to rebuild the confidence of consumers and secure a viable future in the long-term savings market. Failure could mean the end of the insurance industry as we have known it.
Contrary to what some in the life industry appear to think, the sector's biggest problem is not regulation. The new rules may lay down an unduly prescriptive, cumbersome and costly way of forcing companies to heed the interests of consumers, but they are only enforcing a philosophy that should be central to any life company with a long-term commitment to the UK market.
In my view, the industry has a greater difficulty: its slowness in recognising the fundamental shift that has taken place in recent years in consumer attitudes and expectations.
Despite the new disclosure regime, designers of life products remain obsessed about points of detail that are all too often lost on the consumer. Huge amounts of energy, ingenuity and money are still being expended on devising over-complicated policies to meet straightforward needs. Little wonder that life products are no longer seen as relevant by large swathes of the population.
Most life companies either make blind assumptions about consumers, without trying to get a proper understanding of what they actually want. Or they research consumer attitudes thoroughly but then fail to take the findings into account when designing products.
This is not just a case of consumers being sold products they do not need or want. All too often they do not even understand what it is they have bought. Many life offices retain the notion that people do not - and perhaps cannot - understand finan- cial products. Hence they do not provide the facts that consumers need to judge whether or not they are getting a fair deal - a failure that the new regulatory regime has done little to correct.
Consumers want to know exactly what they are buying and how much it costs. The disclosure rules provide some help, but the quantity of information they stipulate - and the way in which it is presented - probably leaves people more, not less, confused. Even for the most sophisticated buyer, it only allows comparisons to be made between life offices. There is still a reluctance to tell customers exactly what proportion of their premiums will go in charges and what will be invested for their benefit.
Eagle Star's answer is to cut through this jungle by instituting a simple and transparent charging structure on a new generation of policies, announced this weekend, which with the help of a new and more flexible computer system eliminates "hidden" costs such as bid/offer spreads, exit penalties and the like.
Life products also have to be more flexible. Historically, they have been highly rigid and even the newer generation of policies marketed as ultra flexible are often fairly unadaptable, or provide flexibility only at a price. People who need to change life, investment and protection policies still tend to face swingeing fees, while cancelling policies early can render them virtually worthless because of exit charges.
All life companies have to offer better value for money by reducing expenses and charges. The current industry average of one transaction per salesman per week is absurd. That one sale has probably emerged from phone calls and personal visits to up to 200 other potential customers, all of which - in effect - the single purchaser has to pay for.
This scattergun approach to selling, combined with the pressure placed on the salesperson, is responsible for much of the low esteem in which the industry is held. It has not only fuelled resistance from consumers, it has also inflated the cost of insurance products and reduced their competitiveness against other financial services.
To escape this spiral, the life industry needs to change its atittude to selling. It should concentrate more on building long term relationships with existing customers. Salesmen, in other words, should be trained - and given incentives - to advise and to nurture their clients, not just to sell.
Logically, the insurance industry is best placed to assume the mantle of responsibility which governments are shedding. Regaining the hearts and minds of consumers will not be easy, but insurers should start with some radically new thinking.
q Dr Ian Owen is managing director, Eagle Star Life.