View from City Road: Insurers must be made to open their doors

It would be nice if insurers would stop going on about the attractions of endowment policies to long-term holders, as Brian Richardson, chairman of the Life Assurance Council of the Association of British Insurers, did this week. His, of course, was a defensive response to the highly critical report on surrender values published last week by Sir Bryan Carsberg, Director General of Fair Trading.

With returns over 25 years of 13 per cent a year, these conventional with- profits policies have proved good investments. Of that there can be no doubt, though the investor might have done as well by buying equities. That, however, is not the issue. What has angered Sir Bryan and others is the misleading way policies have been sold as add-ons to mortgages. Lenders have been so keen to stuff endowment policies down our throats for the sake of commissions that investment characteristics have been all but ignored.

One of those characteristics is cross-subsidisation of long-term holders by those who surrender early. Cross-subsidisation happens with pension funds, too. But then everyone knows they have to wait around a long time to get the full benefits of their pensions. With endowment policies this is not always understood. Openness and transparency are still strange to the life assurance industry. The more it is forced to open its books, the better.