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Activists feel tide is turning on insurance

Insurers, the institutions who run our pensions and investments, are fighting to preserve their power.

Recent weeks have seen a series of blows struck by the regulator, the Financial Conduct Authority, and indirectly by the Chancellor, against the time-honoured practices of the industry.

Last year's ban on commissions paid to financial advisers for pension and investment sales was followed by a similar ban on corporate pension sales where workers were footing the bill for advice. Then in quick succession this year has come an inquiry into the annuities market, an end to compulsory annuity purchase, a looming cap on pension charges, and an investigation into old products with inflated, unregulated charges - the highly lucrative "back books".

When the latter initiative emerged in a newspaper a month ago, a day ahead of its formal publication by the FCA, it prompted howls of protest from the Association of British Insurers.

Otto Thoresen, head of the ABI, said: "What we need to see is a regulator which is fair, which is balanced, which is objective."

Chancellor George Osborne said he was "profoundly concerned" by the leak.

But James Daley, founder of new consumer group Fairer Finance, called the row "a storm in a teacup" and Richard Lloyd, chief executive of Which?, said: "The FCA should ensure these funds are being run in the best interests of consumers and focus on whether there are unfair exit penalties and high charges."

Share prices may have wobbled for a few hours until the FCA clarified its intentions - it admitted it could not force firms to rewrite old contracts - but it is the curtailment of their power in the market that has the insurance firms squealing.

For pensions campaigner and former government adviser Dr Ros Altmann, it looks like a revolution. She said: "It has been heartening to witness such regulatory action at long last, yet nevertheless astonishing to see how long it has taken for meaningful intervention … the time for change has arrived."

Altmann said the old profit model of the insurance sector was based on "paying huge upfront fees to salesmen and then recouping those outlays over many years from the unsuspecting end-customer with often-unfair charges".

Commission-based sales have already spawned a succession of mis-selling scandals. And she said despite the ban on commissions, the industry "continues to bypass advisers and pay commission to others who can sell their products without any advice or quality checks", notably at retirement.

"The insurance industry has fought for years to protect its right to foist annuities on unsuspecting customers at continually worsening rates without any attempt to understand their needs. Insurers even offered 'brokers' a significant percentage of customers' pension savings just for making the sale."

The veteran campaigner, whose past successes include helping abandoned members of collapsed company pension schemes to recover their savings, said: "Even on basic house insurance, let alone complex financial products, the best deals are reserved for new customers, while existing loyalty is penalised with higher premiums."

Altmann is calling for "more flexible products and services that individuals can relate to, without jargon and reams of confusing paperwork".

This week a survey by Fairer Finance found only 27% of people saying they read terms and conditions and policy documents in full - and just 17% said that they understand them. This is hardly surprising when the survey found that, in car insurance, Endsleigh, Sheila's Wheels, Esure and M&S Bank all have policy documents of more than 30,000 words - longer than George Orwell's novel Animal Farm.

Altmann said: "The FCA is shining lights into the dark recesses of industry practice to force modernisation. Customers are crying out for new solutions … I believe the insurance industry can and will rise to this challenge."

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