Make the cover fit the people

Personal Finance

WERE I the boss of an insurance company, I would be extremely worried. Last week, insurance industry leaders announced that income from their life and pensions policies slumped dramatically in 1994. In fact, the drop was the first since records began.

Several reasons have been advanced for this decline. One I was confronted with at a recent three-day floating financial conference aboard the QE2 was that the press was to blame. Our unremitting hostility to the industry had precipitated a crisis of confidence among the public, I was told.

During the same conference, I was buttonholed by a financial adviser. He earnestly told me that if policy-holders lost money through the early surrender of endowment policies they took out to pay their mortgages, it was really their fault.

Endowments, you see, are long-term saving contracts. If you keep them for the full term, usually 25 years, you will benefit from them. If you "break your contract", you should not expect to be compensated for it.

This adviser's arrogance, this assumption that tens of millions of us lead, or should lead, robotic and unchanging lives, is what has brought the insurance industry to its knees.

He had no understanding of the real-life pressures that lead to divorce, to unemployment or short-time working, to the repossession of homes. Human beings, in this chappie's eyes, were simply there to be shoehorned into a financial product.

As if that weren't bad enough, millions of us have been bamboozled into buying policies that are grotesquely expensive. Charges are hidden under a plethora of strange-sounding names and weird initials.

Frankly, blaming the messenger is stupid. It also avoids having to grasp the nettle, which is that unless these people improve their attitude, they are cruising for a bruising.

There are signs this is changing, if belatedly. A recent speech by the managing director of Eagle Star, one of the largest insurers, admits: "The sad fact is that our industry, despite what it may say, has failed, and is continuing to fail, to recognise and respond to the needs of the consumers."

Too true. Until his words are taken up and acted on by his colleagues, I predict even more "unremitting hostility" from this column ... and dire sales figures for his industry.

THE IRONY is that never has there been a greater need for genuinely independent financial advice. Last week Virgin Direct, brainchild of airline tycoon Richard Branson, launched a Personal Equity Plan savings scheme which tracks the performance of 900 companies in the FT-A All-Share Index. Virgin's boast that its PEP is the cheapest in the market was knocked by Gartmore, another fund manager, which launched a similar plan last week.

In a few weeks, a swarm of corporate bond PEPs will also be launched, each promising high, relatively risk-free income. Choosing the right one will be a formidable task.

What Virgin has done is admirable. It offers investors a cheap, convenient and accessible way of investing their money. Gartmore, too, deserves praise, not least for the fact that it is prepared to match Virgin.

So in which of these two PEPs, if any, should one place savings? That's the problem. If you are a sophisticated investor, making an informed choice is possible. Last week, a retired lady called me. She had pounds 10,000 saved and wanted to put pounds 6,000 into Virgin's PEP, because she had heard this was a sure-fire investment. Was this sensible? To be honest, I do not think so.

This is when it does pay to take advice. The real question is: are there enough advisers out there who are prepared to treat their clients as they would their mothers? I'm not yet convinced that there are.