Mary Francis, the director general of the Association of British Insurers, was yesterday derided by MPs on the Treasury Select Committee for being "incredibly complacent" about the failings of an industry that has mis-sold products to millions of customers.
Angela Eagle MP said: "Misrepresentation of products and bribery of distribution channels - that's the insurance industry in a nutshell. Endowment mortgages are a huge mis-selling time bomb that is only going to damage this industry further. The complacency that you have shown is incredible."
She demanded to know "why it was that people who went to buy a house ended up with a life insurance product", adding: "The real customers of life insurers are the intermediaries who were driven to sell these products with high commission."
Ms Francis said only 2.5 to 5 per cent of endowment customers had complained about their endowments. But MPs heard from Ned Cazalet, the independent insurance analyst who was also giving evidence to the Committee, that complaints are rising rapidly and that the insurers are not communicating the problem to customers properly. He estimates that every endowment policy will fall short by an average of £11,000.
Yesterday's hearing is likely to spark a wider inquiry by the Committee into the long-term savings industry. The MPs are concerned that confidence in the industry has been dented by frequent mis-selling scandals. They heard how the industry was failing to control costs that had been built up from the need to pay high commission to salesmen.
Mr Cazalet said: "Insurers have bid furiously for business through intermediaries by paying commission. Costs in the industry last year were £12bn, £7bn of which was to win new business. That's staggering - about £572 a year per household. An industry with these charges does not make sense. With returns from investments getting lower, how can the industry continue to charge this much for such a measly offering?"
Nigel Beard MP accused insurers of being "collectively reckless" by continuing to invest in equities throughout the worst bear market seen since the 1940s. This has resulted in with-profit customers having their bonuses slashed. Mr Cazalet told the MPs that insurers had lost £100bn on the stock market in the past three years.
The Committee is concerned that not enough people in the UK are saving for their retirement. Ms Francis warned that too many people are relying on property values to fund retirement. She said: "I am sure that people are hoping to use their property to produce retirement income. But I question whether they have been over-influenced by the increasing value of their property, assuming that property will always outpace everything else."Reuse content