Policyholders to lose out on windfall

by Stewart Douglas

Story link: Policyholders to lose out on windfall

A group representing insurance customers is considering turning to the courts over concerns that insurance companies plans to make use of extra assets will negatively affect current policyholders.

The Financial Services Authority (FSA) verified that companies are able to employ any excess capital along with profit funds to finance the other areas of business. Consumer watchdog Which? however believes that this is extremely unfair to customers as it diminishes the assets that are accessible to them.

The firm Avia, who are currently contemplating the direction of Norwich Union’s surplus of £5.4 billion, appreciated FSA’s concerns on this issue. The Financial Services Authority specified where they are in regards to the handling of the companies’ “inherited estates” through correspondence with Clare Spottiswoode.

Aviva employed Ms Spottiswoode to resolve customer concerns and decide the amount they would receive of the profits as part of the ‘re-attribution’ of the Norwich Union firm.

It has been verified, that rules under the FSA do allow businesses to employ ‘orphan assets’ to fund any new areas of enterprise and also to offset any deducted tax, which reduces the amount customers can receive.

However, the FSA stated that they would evaluate whether or not the companies’ use of extra cash to fund other ventures could be termed as reasonable.

Clare Spottiswoode who felt dissatified with the FSA’s reply expressed: ‘Policyholders have an expectation that the estates will be used for their benefit or distributed to them.’

Which? deems that the FSA’s response to the matter means that nearly five million Prudential and Norwich Union customers may witness potential windfalls being dramatically reduced.

However, Aviva appreciated the FSA’s statement, which they claim will help them conclude future negotiations to ensure that they can make policyholders a fair offer.

They will subject offers to a vote in the beginning of the year, with the windfalls possibly occurring towards the end of 2008.