The UK’s Financial Conduct Authority (FCA) has published its findings from a thematic review of the fair treatment of long-standing customers in the life insurance sector.

A total of eleven firms were included in the thematic review. The eleven firms varied in size, type and business model with the aim of capturing a representative picture of the sector as a whole.

Included in the eleven firms were firms closed to new business, consolidators and firms that are still writing new business but also had closed-books within their business.

‘Mixed picture’

The FCA found a mixed picture with most of the eleven firms demonstrating good practice in one or more areas and poor practice in other areas.

One of the purposes of the FCA’s review was to gain an understanding of the levels of exit and paid-up charges being incurred by long-standing customers, and firms’ behaviour in applying those charges.

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The FCA found that even where customers are aware of these charges, the impact these charges can have on the returns customers receive can be significant and they may present barriers to customers shopping around.

Communications review

The FCA also assessed the communications firms provided to long-standing customers. According to the FCA, 6 of the eleven firms who took part in the thematic review provided it with documents where exit or paid-up charges applied.
In those six firms, the majority of policies reviewed did not include such charges.

However, where charges were applied, the FCA said its findings indicate that the six firms may have failed to inform customers of these charges at the time they were incurred (i.e. when the policy was exited or converted to paid-up or were charged on an ongoing basis for some paid-up policies).

The FCA is concerned that as a result, some customers may potentially have been unaware that they would have to pay such a charge or that they have paid or are paying such a charge.

Commenting on the findings, Tracey McDermott, acting chief executive of the FCA, said:"Given the long-term nature of closed-book products, it is vital that customers are treated fairly and given the right information on an ongoing basis in order to help them make important financial decisions. We expect all firms with closed-book customers to take into account the findings we have published today and ensure they are treating their closed-book customers fairly.

"The practices at some firms appear to have been poor. We have particular concerns regarding how some firms communicated with their customers about exit and/or paid-up charges. We are now doing further work to understand the reasons for these practices, whether customers may have suffered detriment as a result and, if so, how widespread these issues are."

Matt Browne, director at PwC, said: "After a long wait, and a couple of false starts, the FCA has published the results of its review into the treatment of long-standing customers. The regulator isn’t pulling any punches – and looks set to take action across the life industry based on these findings."

Brown added: "It’s clear, the review is going to have a big impact on life assurers. That’s to be expected – but these firms are already shouldering a weight of regulatory and legislative change, not least of which are the pensions reforms, which could include a cap on charges. "