View from City Road: Disclosure rules that will not work

There is little mystery about why it has taken nine years since the enacting of the Financial Services Act to achieve full disclosure of life assurance commissions. The regulators nearly became poodles of the industry; they completely underestimated the industry's fearless regard for its own commercial interests at the expense of its customers.

Now the Personal Investment Authority is to oversee disclosure rules that are extraordinary only because of the length of time it has taken for them to arrive. What other industry can have fought such a successful rearguard action against telling its customers what they are paying?

The other oddity is the lengths to which Andrew Large, SIB chairman, feels he has to go to justify the new rules with cost benefit analysis.

These nebulous exercises are mainly used when government officials need to dream up reasons to justify putting a motorway through somebody's backyard.

The SIB one is full of heroic assumptions and large round numbers. Sales of life assurance are expected to contract about 10 per cent. Bill Foggitt, the Yorkshire weather forecaster, could probably make a better guess with his onion skins. And just like bank services, it is perfectly possible that life assurance will prove insensitive to levels of commissions.

It is particularly absurd to put a pounds 100m value to consumers on the likely loss of sales by the life industry, on the grounds that fewer people will buy unsuitable policies when they see the price. The number seems plucked out of the air.

As for the costs side of the equation, the pounds 100m for the industry to implement the rules looks much too low. A single firm, Scottish Widows, which has 3 per cent of the market, is expecting to spend pounds 7m. That would put the industry total at pounds 230m.

The rules themselves also contain potential for trouble, because of the emergence of combined banking and insurance companies such as Lloyds, TSB and Barclays. They are to disclose their equivalent of the commission paid to independents, calculated from their costs of selling. This will be a nightmare to police, if the PIA is to maintain fairness between different types of organisation. Commission disclosure is a long overdue reform but you can quarrel with its execution.