View from City Road: Pru's proposals fail to excite

Last November, Mick Newmarch, chief executive of Prudential Corporation, suggested the life insurance industry should resolve the long-running dispute over its sales practices through a dialogue with the Office of Fair Trading. Hence yesterday's open letter to the OFT setting out the Pru's approach to telling customers what they are buying.

It is not obvious that it has been worth the wait. Mr Newmarch draws a number of distinctions, but it is far from clear that Prudential's preferred method of disclosure would be any better at preventing thousands of life insurance policies being taken out and cancelled before buyers receive value for their premiums.

The OFT is keen to give much more information about the financial penalties investors face on early cancellation. Mr Newmarch argues that, rather than give hypothetical illustrations of cash proceeds, it would be better to ensure that 'the saver is put in possession, pre-sale and in frank and unambiguous terms, of the material facts about the contractual arrangements which will apply'.

These key contract terms would cover premiums and penalties imposed for stopping payments, the build-up of policy proceeds, ancillary features such as mortality cover and fund management and administration charges.

Mr Newmarch makes the valid point that buyers of life insurance rarely shop around. They will therefore make little use of comparative expense and performance data to select a contract. Publication of these details would stimulate improvement from companies least able to bear scrutiny.

In contrast, Mr Newmarch claims the Pru's approach would give a more general impetus to improved standards through self-assessment and peer pressure.

The trouble is that many in the life insurance industry would already claim to be setting out the terms of their policies. Some deluded fools might even believe they are doing so frankly and unambiguously. Life companies argue that they sell long- term contracts. Those who leave early must expect to lose out.

If policyholders did understand the issues in this clear way, there would be no problem. But, even if a contract is set out clearly, many fail to imagine the impact of divorce, redundancy or serious illness until it happens.

The OFT intends to respond to the Pru with an open letter of its own. The Pru, meanwhile, is to produce more detailed proposals. It will need to work hard to convince.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe