Policyholders who suffered financial loss following the near
collapse of the UK’s oldest mutual insurer Equitable Life Assurance
Society (ELAS) in 2001 gained cold comfort from the British
government’s response to Parliamentary Ombudsman Ann Abraham’s
damming report on regulatory incompetence.

“This is the start of yet another chapter in the fight for
compensation, rather than a conclusion,” said independent policy
adviser Ros Altmann.

At the heart of the issue is a demand for compensation of
policyholders who suffered losses, much of the blame for which has
been laid at the door of UK financial regulators.

In Abraham’s report, published in July 2008, she directed
condemnation at three regulatory bodies – the Financial Services
Authority, the Government Actuary’s Department and the former
Department of Trade and Industry – in relation to their regulation
of ELAS.

In total her report, covering a period from 1988 to 1 December
2001, detailed 10 areas of what she termed “serial

Abraham called on the government to apologise to ELAS
policyholders and establish and fund a compensation scheme for
aggrieved policyholders. Her conclusion on compensation echoed that
of a European Parliamentary enquiry into ELAS in 2007.

According to Paul Braithwaite, a director of activist group the
Equitable Members Action Group, total losses incurred by
policyholders are estimated at £4.65 billion ($7 billion).

The British government has met one of Abraham’s recommendations
in full: it has apologised on behalf of public bodies and
successive governments responsible for the regulation of ELAS;
accepted that maladministration by public bodies occurred; and
that, in some cases, this caused an “injustice” to some ELAS

On the issue of compensation, however, the government rejected
Abraham’s recommendation but did add it believes “some ex gratia
payments will be warranted”.

In rejecting calls for a full compensation scheme the government
argued that Abraham’s remit was to consider the role of regulators
and not the role and responsibility of ELAS and other parties.

An earlier report into ELAS by Lord William Penrose did,
however, have a wider remit and found a series of failings by ELAS,
stressed the government.

“The current board of Equitable Life and many others have
acknowledged the legitimacy of Lord Penrose’s conclusion; few
people dispute that its former management were primarily to blame,”
noted the government, quoting from a report by the Public
Administration Select Committee (PASC) to parliament in December

Also highlighted was the PASC’s point that a decision to
compensate must not be the equivalent of “signing a blank cheque on
taxpayers’ behalf”.

The government stressed that compensation payments must also
take account of the extent to which losses suffered by
policyholders resulted from regulatory maladministration or factors
such as ELAS’s conduct.

Obtaining the information is another issue and to this end Sir
John Chadwick, a judge and expert in financial matters, has been
appointed to ascertain:

• The extent of relative losses suffered by ELAS

• What proportion of those losses can be attributed to
maladministration, actions of ELAS and other parties;

• Which classes of policyholder have suffered the greatest
impact; and

• What factors arising from this work the government might wish
to take into account when reaching a final view on determining
whether disproportionate impact has been suffered.

Based on Chadwick’s advice and taking account “the position of
the public finances and practical considerations” the government
will introduce a “fair payment scheme for policyholders”.

Unimpressed, Altmann said: “This is really a very disappointing
response, but one that will be incredibly difficult to

She believes the government is, in effect, saying the process
will take a long time and will not pay out much.

“For example, it wants more information about the losses people
have sustained, so it will firstly ask Equitable Life to provide
its policy holder records,” said Altmann.

“For 1 million people, that will be a huge undertaking,” she

In addition, assessing the relative culpability and relative
losses will be very slow, cumbersome and complex process, said
Altmann. Undoubtedly the ELAS saga is set to drag on for many more