Insurers' David faces Goliath

Michael Prest reports on a campaign for mutuals to serve their members better
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Money is often the most difficult issue to address when you are terminally ill or suffering a serious personal misfortune. But each year thousands of life insurance policies lapse or are cashed in early for much less than they might fetch by people for whom extra cash would be a welcome relief at a very difficult time.

If you are in this position, help may be at hand because a small insurer has launched a David and Goliath campaign. Its aim is to persuade Britain's biggest life insurance providers, especially mutual societies such as the Scottish life offices, to provide much more information to policyholders about ways of getting better value out of life insurance policies some way off maturity.

The company, International Viatical Settlements, operates in what is called the secondary insurance market. The secondary market frequently offers holders more for their policy than the insurance company would for cashing it in early.

David Barclay-Miller of IVS is appealing to customers ("members") of mutual insurers to put pressure on their managements by calling special meetings of the societies. The members would put forward resolutions asking the societies routinely to give them information about the secondary market. The information would not favour any particular secondary operator.

The campaign challenges mutuals to take their often-neglected members seriously for a change. Under rarely used powers, as few as 50 people may be needed to call a meeting, and even fewer to pass a resolution. The eligible members who can call special meetings and vote at them are usually holders of with-profits endowment policies.

A possible indication of the pent-up demand comes from Australia, where a successful campaign against foot-dragging insurers was fought along similar lines. By raising the spectre of costly special meetings, Bernie Kelly, who started a company called Policylink, persuaded Australia's insurers to give information about the secondary market.

IVS specialises in taking over life insurance policies from people who are terminally ill. Mr Barclay-Miller estimates that as many as 100 of the 450 people who die each day from terminal illnesses in Britain could benefit from selling their life policies into the secondary market. Many more could benefit from realising the value locked up in other kinds of policies.

A typical example would be a terminally ill person who, doctors estimate, has another two years of life. The individual has a 25-year with-profits endowment policy, pays premiums of pounds 140 a month, and has a guaranteed death benefit of pounds 30,000. The full value of this policy at maturity could be pounds 120,000, but after only 10 years, the policy's surrender value is just pounds 20,000. By contrast, a secondary market company might pay as much as pounds 45,000 to the policy holder. IVS, or whoever buys the policy, receives the death benefit when the original policyholder dies.

The vast majority of policyholders are unaware of what their policies might be worth, however. The secondary market is fragmented, financial advisers may not know much about it, and some life companies prefer not to advertise its existence because they stand to gain from lapses or they try to sell loans as an alternative.

Mr Barclay-Miller believes it is morally wrong for companies to "profiteer" from policyholders' misfortunes in this way. So his campaign is aimed at persuading life insurers to provide information at important stages in the life of a policy - such as when it is sold, when premium payments unexpectedly stop, or when the holder asks about surrendering it.

The campaign targets the mutual insurers such as Standard Life, Scottish Widows, Scottish Provident, NPI, Equitable Life, National Mutual and Friends Provident, only a minority of which provide any information about the secondary market.

He has written twice in the last few months suggesting they should provide more information on the subject. Most of the answers have been "dusty", he says. The mutuals concede, however, that a small number of members can call meetings to push such demands.

q IVS is on 0171-801 5183.