Richard Harvey, Chief Executive of Aviva: Optimism may be infecting life and pensions but it's still a long-term game

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The Independent Online

A dangerous epidemic has been spreading through the boardrooms of the UK's life and pensions industry over the past few months. Legal & General's David Prosser was the first to get it; Prudential's Jonathan Bloomer was the next; and yesterday, even Richard Harvey, Aviva's group chief executive and the chairman of the Association of British Insurers, began showing the symptoms.

After a year of caution all round, and warnings about prospects for the year ahead, every one of the UK life and pensions industry's biggest players appears to be moving towards the consensus opinion: prospects for the UK market are looking up. For Prudential, the change in outlook is proving especially lethal and could possibly cost Mr Bloomer his job because he surprised the market by saying he needed to raise cash to take advantage of the opportunities.

Unlike Prudential, however, whose bearish mentality transformed into unwavering optimism in a few months, Richard Harvey is more measured in his change in tack. Nevertheless, the shift from August's downbeat attitude is undoubtedly underway. "I think we are cautiously optimistic about the UK," says Mr Harvey. "But when we talk about recovery we are talking about something that is not going to be here before the end of the year."

While markets have remained largely flat in 2004, and rising interest rates have sent up the cost of mortgages, there has been little to encourage investors over the past nine months. But with rates now seemingly at a peak, and time slowly healing the wounds to consumer confidence, caused by a string of financial-services crises over the past few years, Mr Harvey believes medium to long-term prospects for the savings industry are looking up.

Here lies the main difference between Aviva's CEO and his biggest rival, Prudential. Whilst the Pru believes that a recovery in the life and pensions market - triggered by de-polarisation and the rise of pensions on the political agenda - will spark short to medium-term recovery, Mr Harvey believes it will be a much longer game, and that the shift may not be as major as some are anticipating. For the Pru, depolarisation (whereby financial advisers will be able to tie to a handful of providers rather than having to either be independent or tied to just a single company) is at the heart of their new growth strategy.

"I don't think depolarisation in itself is going to change the size of the market," continues Mr Harvey. "I would describe it as broadly neutral, and in the long term distinctly positive for large players because those who choose to represent a modest range of companies will be inclined to inevitably make sure they've got some of the key names on their shelf.

"It's a bit like thinking of a supermarket that doesn't have Heinz beans on the shelf. You wouldn't not have Norwich Union on your list of companies - because a customer would actually think it was rather strange if they walked into your shop front and couldn't buy that kind of brand." However, he adds, the extent of any boost which it may provide to the biggest players is still uncertain.

Whatever shape the UK market takes, Mr Harvey says Norwich Union is committed to keeping its top spot. After being one of the main critics of stakeholder and the 1 per cent charging cap, he says that Norwich Union is now working towards producing two sets of product lines - one which falls within the stakeholder requirements, and another which charges more.

While Mr Harvey, like the other life company CEOs, believes 1.5 per cent is enough to make a half-decent margin, he would rather see such caps done away with altogether.

"Every time you restrict the pricing, all you do is size the envelope of how many people it's economic to go and sell to," he says. "The lower the price cap, the more you sell only to the wealthy who are paying large premiums and who don't need a great deal of advice because they're never going to be, for example, part of the means-testing. By opening up the price cap, you are bringing about the opportunity of accessing a wide set of the population."

He adds that he is now most interested in seeing the finalised details of the FSA's so-called "light touch" financial advice regime, which will allow a pension to be sold in 40 minutes - rather than the current average six hours of questioning and paper work.

Asked if he believes such a regime will have enough room for consumer protection, he retorts: "There has to be a point where you trust people - after all it's better that they [buy a pension] than go and spend it in the casinos we're about to build."

With the Government's tinkering of product specifications and sales regimes finally coming to an end, Mr Harvey says that the next big task is to get people saving. He says the Turner report laid down a useful marker, and that he would like to see clear recommendations and action on means-testing and incentivisation in the final volume.

"There are two or three things that will help people think more clearly about saving more," he says. "One of them is the fundamental clarity about what the Government is going to provide and the extent to which it will be means-tested. And you really need an all-party buy-in to that formula, and you need it to be very simple."

He adds that in an ideal world, he would rather see means-testing abolished altogether, and suggests that compulsion should only be called upon as a last resort.

"Compulsion is where you get to if you decide that all [your other initiatives are] still creating a society in which not enough [saving] is happening. I don't rule it out in the long-run, but I'd like to see the clarity of incentivisation by tax, and I'd like to see ease of access first."

There is also the matter of restoring faith in an industry that many feel has let them down. While Mr Harvey admits mistakes were made, he believes the industry has been good at putting right the wrongs, and learning from its lessons. He believes consumers are slowly starting to put the likes of mortgage endowment and pensions mis-selling behind them.

Although the latest scandal - the row over contingent commissions paid by insurers to brokers, being investigated by the New York attorney-general, Eliot Spitzer - has little direct implications for consumers, it has the potential to cause yet another crisis of confidence. While Mr Harvey is reluctant to talk about the matter on behalf of the ABI, and Aviva no longer has a commercial insurance division, he insists, contrary to market talk, that he does not believe any of the alleged fraudulent activities have gone on in the UK.

Mr Harvey is an optimist and sees the silver lining to every cloud. As well as his bullish views for his business, he says he is looking forward to seeing the All-Blacks, team of his second home, regain the rugby world cup in three years time.

Whether he, Mr Bloomer or neither are right about the timing of a recovery, and restoring confidence in UK financial services remains to be seen. But if their optimism continues to spread, perhaps they will see their prophecy self-fulfilled.

New bull on the block

Post: Group chief executive officer, Aviva plc

Age: 54

Education: Maths degree, University of Manchester

Career: Began work as an actuary in the UK.

Manager, personal pensions, Phoenix Assurance, 1983-85

Marketing manager, Sun Alliance plc, 1985-87

General manager, Sun Alliance Life New Zealand, 1987-92

Chief executive, Norwich Union Holdings New Zealand, 1992-93

General manager (finance), Norwich Union, 1993-94

Group finance director, 1995-97

Deputy chief executive, 1997-98

Group chief executive, 1998-2000

Deputy group chief executive, CGNU plc, 2000-01

Group chief executive Aviva plc, 2001-present

Pay: £1.1m in 2003, including bonuses and benefits

Family: Married with three children

Lives: Chelsea, London

Hobbies: Tennis, walking, theatre, watching rugby