Treating Customers Fairly (TCF) is a Powerful Phrase!
In a month where the budget has already turned the tables on the Insurance Companies, Friday brought even more good news for consumers: an investigation into rip-offs on pensions, life insurance and endowment policies sold before the turn of the century. These amount to 30m policies, some of which have been forgotten about by their owners and lie neglected by the companies that hold them, including “zombie funds” – businesses closed to new customers. The instant hit to the insurers’ share prices underlines that this is a big deal, but until the scope of the inquiry is known it is impossible to say how much it will cost them.
The culture of wooing new customers while you ignore those who have been loyal is rife in financial services, and perhaps nowhere more so than in long-term investments like pensions and life insurance where consumers tend not to actively watching their returns. Older policies often have higher charges than new ones, and may not still be suitable for the people who bought them – but when holders try to escape they are whacked with huge fees. An unengaged customer is much easier to rip-off than one who is in the process of taking advice and shopping around.
At last the Financial Conduct Authority is putting the treatment of long-term policyholders under the spotlight. But despite what the share prices of the insurers show today, its action may not mean a stampede for the exit. The penalties for those who want to cash in their policies early are set to form part of its review, but the regulator says it is more intent on making sure longstanding customers are treated fairly (TCF) and in the same way as new customers. A wholesale scrapping of exit fees seems unlikely. Instead the regulator may say policyholders should be moved to a better deal when an older charging structure is pensioned off, or allowed access to better-performing funds. That recommendation would, of course, cost the insurers money and put an end to a culture of using longstanding customers to subsidise newer ones.
We won’t know the scope of the inquiry until the summer, but the focus is on making sure people who get to the end of their policy, due to retirement or otherwise, do not suddenly find their returns gobbled up by charges. And now that those consumers will be able to do what they want with the money when they reach pension age, all in all it’s been a very good month for them. Less so for the insurers.