View from City Road: Treasury's life insurance intervention is welcome

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The Independent Online
After five years of debate, the new Chancellor of the Exchequer yesterday called for an end to the protracted arguments about the disclosure of life insurance commissions. Insurance salesmen, whether tied to one company or independent advisers, are to be forced to tell their clients how much, in cash, they will be paid for the policies they sell. This is good news for the consumer.

It is a also a welcome intervention by the Treasury in a debate that had become bogged down in the City's self-regulatory system. More junior regulators had proven unable to resist arguments put by the insurance industry. It is just a pity it took so long.

The battles are not over yet. The Securities and Investments Board still has to devise an effective method of disclosing the remuneration of tied salesmen. This is a notoriously complex area because commission may be only a small part of pay - which might also include soft loans, business development help, information technology support and sales conferences in exotic locations. Recalcitrant life offices are even now preparing to complain that there is insufficient time to tackle all the complexities ahead of the year-end deadline for the SIB to produce its proposals.

Professionally run firms should, however, have little to fear. How can advisers both claim to be providing a valuable service and be afraid to reveal its price? Many independent advisers already disclose details of their commissions (though not as early in the sales process as will be required).

It is possible that cash disclosure of commissions might encourage life offices to move away from front-end loaded contracts towards ones paying level commission. Many in the industry say they are examining the options; no one has so far been brave enough to try these on the public. Such a move would increase the capital costs of selling life insurance, threatening the future of the weaker companies.

Anthony Nelson, the financial secretary, yesterday referred to the high proportion of policies surrendered early (first-year surrenders cost an estimated pounds 250m a year), the fraction that makes it through to maturity and the 80 per cent of mortgage borrowers who are encouraged to take out endowments. The industry, which feels beleaguered by press and consumer criticism, should beware.