Regulator puts the boot in, but will it make a difference?

The FCA got tough over ID theft insurance, but don’t expect the industry to change its ways

Personal Finance editor

When will the financial services industry ever learn? This week we have had the Financial Conduct Authority (FCA) setting its stall out as a new-style regulator by ordering the industry to refund premiums gathered between 2005 and 2011 for largely useless ID theft insurance. Millions will see premiums returned which could amount to many hundreds of pounds. What’s more, the financial firms will have to take the initiative in this and actually contact individuals with a compensation offer which looks more than fair – hopefully putting the kibosh on the no win no fee vultures in the process.

I was a longstanding critic of the old Financial Services Authority – and I was far from alone in that – but if this is the sort of decisive consumer redress action we can expect from the new FCA then I am delighted. I would like to believe that the banking sector will learn from this latest costly mis-selling scandal, but the fact that the real spike in sales of bogus ID theft insurance happened just as the proverbial was hitting the fan over payment protection insurance mis-selling indicates to me that the industry still thinks that the right response to being exposed for doing wrong is to go and do a different type of wrong in another part of its business to fill in the profits gap rather than genuinely learn the lessons. 

Maybe though, this time with a stronger, more vibrant regulator in view, the banking industry will finally learn that packaging up useless insurance and mis-selling it routinely is frankly a mug’s game – but I won’t be holding my breath.

The wrong product

After more than two decades of effort by campaigners, the insurance industry seems to be finally taking a more active approach to ensuring people at retirement get an annuity which suits them best.

The Association of British Insurers has just compelled its members to publish their annuity rates on their website so people can compare them. However, this move seems to have taken for ever and some providers have been dragged kicking and screaming into this most basic of steps. The truth is that a substantial minority – if not a majority – of people who buy an annuity go for the wrong product either because they have an illness which should mean they are due a higher payout or they fail to take account of inflation or proper provision for a surviving partner.

The insurance industry has been complicit in this and just publishing some rates, however welcome, is nowhere near enough. In my view we should bar insurers from offering annuity rates to their pension savers, in effect forcing everyone to shop around and stopping people simply buying the annuity which is offered by their pension provider.

Buy-to-let trap

It really is beginning to feel like the early 2000s all over again.

This week I received news of a new batch of “guaranteed rental” property developments – aimed at buy-to-let investors. This included for the first time some apartment blocks in the big northern metropolitan cities. This was a signature of the property boom of the 2000s with a plethora of apartment blocks springing up catering for that often mythical panacea of property programmes and the inexperienced buy-to-let investor, the young professional.

Many first-time. buy-to-let investors bought these apartments off plan, often not even travelling to the town or city they were based in – a crazy leap in the dark. I know of one lady after being handed a large home in a divorce settlement remortgaged to buy four apartments in Manchester off plan, without viewing, to supply a regular income.  The market then went pop and she was left with flats that were difficult to rent out and a hefty mortgage on the family home; not a good position to be in.

Things have definitely got better and many of these ghost developments are picking up. Building worked mothballed for the past five years is now coming on stream and with them are some seemingly tasty incentives such as the guaranteed rental offers that have found their way into my inbox this week.

However, if you are thinking of buy-to-let shun anywhere you don’t know well, resist the hype and understand that you will be paying for any incentive offered through a mark-up on the price.

In fact, if I was looking at buy-to-let now, I would focus on areas where there are improvements to local transport or infrastructure on the cards, where there was a student population nearby and, crucially, somewhere I am familiar with and able to get to and from easily.

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