View from City Road: Insurance open to abuse

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The Independent Online
Abbey National's link-up with Commercial Union clearly takes the whole business of selling insurance through banks and building societies a stage further.

Bancassurance, where banks sell tied life insurance and pension policies through their branch networks, is becoming commonplace. So too are arrangements such as the Bristol & West tie to Eagle Star, where B&W sells Eagle Star products for a commission. The Abbey plan is altogether more ambitious. Here Abbey is putting up pounds 25m and CU pounds 75m for a joint venture company that will sell home insurance to Abbey customers. There are plans to expand into other types of insurance, too. Royal Bank of Scotland has been doing something similar with Direct Line for some years. From the autumn, building societies will be free to own their own captive insurers. Plenty will follow Abbey.

To begin with at least, this must be good news for the customer. With no commission to pay, policies should be cheaper. Long term, however, it is bound to hurt choice. The selling of captive insurance is always wide open to abuse. The Office of Fair Trading should keep an eye on developments.