David Prosser: Standard Life: take gains and get out

Should 2.4 million policyholders at Standard Life back the insurer's proposals to demutualise and float on the stock market this summer? Unequivocally, the answer is yes. Does the £1,700 worth of shares that the average member will receive in the float represent adequate compensation for the collapse in investment returns at the insurer over the past six years? The answer to that one is an equally clear no.

I'm a big supporter of the concept of mutuality, particularly in the building society sector. It seems pretty obvious to me that a business that has to share profits between customers and shareholders is likely to offer a less attractive deal than one that only has to serve the former group.

Unfortunately, Standard's future as a mutual organisation is not sustainable. In order to keep up with its rivals, and continue generating profit, it needs capital that cannot be raised without access to the stock market. And while it remains mutual, the insurer will continue to find it difficult to protect members from stock market volatility.

However, don't think for one moment that Standard has simply been a victim of difficult times in the stock market, or that mutuality has suddenly become a tougher way to run a business. The truth is that this once great insurer has made a complete pig's ear of investing its members' hard-earned money.

For 25 years or so from the mid-Seventies onwards, insurance companies such as Standard promoted with-profits investment as the ideal way to save, particularly for a pension or an endowment fund linked to your mortgage.

The appeal of with-profits is twofold: your money is professionally managed by a team of investment experts, and the insurer keeps something back in good times in order to bolster returns when the stock market is down.

Standard has failed millions of policyholders on both counts. First, its investment experts made the schoolboy error of maintaining the largest possible exposure to the stock market during the period when share prices were collapsing, between 2000 and 2002, only to finally pull back just as prospects began improving in 2003.

To add insult to injury, Standard betrayed the current generation of with-profits policyholders by paying far too much to those members whose plans matured during the boom years of the Nineties. It then had nothing left to prop up the policies of those taking their money in more recent times.

The effect of these two failures has been dramatic. Today, the UK stock market is about 13 per cent down on its highest point at the start of 2000. Yet a policyholder cashing in a 25-year endowment policy this year, having paid monthly premiums of £50, can expect to get £41,000. That is a staggering 63 per cent less than the £110,000 that an identical policy would have paid out back in 2000.

In summary then: vote yes to the demutualisation. But then think carefully about a speedy departure from Standard, if you can get out of the insurer without paying for any exit penalties.

* Last week, I warned readers wowed by the offer of free broadband from Carphone Warehouse that a price war might yet produce even cheaper offers. Within days, that price war began: the independent broadband provider Biscit is now offering a home phone service and broadband access for £19.99 a month, £1 less than Carphone Warehouse.

Biscit's deal comes with various bells and whistles (it doesn't match Carphone Warehouse on international calls, for example), but it does prove that signing up to the first cheap offer you see may mean missing the largest savings possible.

Now it's up to the larger broadband players - British Telecom, Sky and Sir Richard Branson's Virgin, in particular - to show they can do even better.