tag:blog.appgifs.org.uk,2008://10 2008-07-17T08:47:42Z David Worsfold's unique inside view of politics, Parliament and legislation as it affects the world of insurance and financial services Movable Type 3.36 tag:blog.appgifs.org.uk,2008://10.51512 2008-07-17T08:25:12Z 2008-07-17T08:47:42Z

Are we finally turning the pages of the final chapter of the Equitable Life saga? You have to hope so for the sake of the many investors who have struggled along for so many years waiting for someone to admit...

David Worsfold Are we finally turning the pages of the final chapter of the Equitable Life saga? You have to hope so for the sake of the many investors who have struggled along for so many years waiting for someone to admit they got it wrong, very wrong. Incompetent management that tried to dishonestly duck out of the promises the company made to policyholders was allowed by negligent regulators to destroy a company that was once a mainstay of the life assurance market. The management has been firmly nailed for its part in the fiasco of hyped up promises and unrealistic returns but they have no money to compensate the people who trusted them with their money. The regulator at the time was the old Department of Trade and Industry, later the Treasury, so it has been to government that the investors have looked for compensation: so far, it has callously stonewalled every attempt to persuade it that it has a moral duty to compensate those who have lost out. It is almost as if it hopes the battle will drag on long enough that the annuity holders most affected by the collapse will have died out before it has to do anything. Unfortunately, it is hard to see anything changing despite the damming report from the Parliamentary Ombudsman. Gordon Brown as Chancellor wouldn't listen to their pleas so he is hardly likely to change his tune as Prime Minister at a time when there is very little spare public money to be had. He has probably made the cynical calculation that most of the people who lost out were home counties Tory voters so there is no political gain in helping them out. On that he is probably right as very few Labour MPs have ever been exercised by the demise of Equitable Life. tag:blog.appgifs.org.uk,2008://10.51484 2008-07-15T09:59:39Z 2008-07-15T10:13:19Z

The UK insurance market is slowly retreating from offering flood insurance as a standard feature of household and commercial property policies. That is the message from the latest iteration of the Statement of Principles issued at the end of last...

David Worsfold Statement of Principles issued at the end of last week. This statement was first put in place after the severe floods during the autumn of 2003 and was tested beyond its limits by last year’s double flooding whammy. The insurance industry has used it relentlessly since to put pressure on government to increase flood defence spending and tightening up of planning permission for developments on flood plains. No-one can blame the insurance industry for doing that. The UK market is the only market in Europe where flood insurance is readily available. With weather patterns changing and flooding become a more frequent occurrence, the industry is entitled to ask for better flood prevention and an end to the obvious stupidity of allowing developers to build on flood plains. The Association of British Insurers has got a lot of what it asked for but knows that in the current economic and political climate it is no good returning to their desks at their Gresham Street HQ with an air of smug triumph and sitting back reflecting on a job well done. They have rattled the government’s cage again and again, dropping dark hints that the Statement of Principles – and the obligation to keep offering flood insurance that goes with it – might not be sustainable for much longer. What we have now is some certainty as far as insurance company bosses are concerned: the agreement to keep offering flood insurance will come to an end in 2013. If we have another summer like last year before then, expect to see insurers queuing up under the exit sign. In the meantime, the industry has trimmed back its commitment with immediate effect with some properties no longer eligible for flood insurance and, as the British Insurance Brokers’ Association rightly points out, some new builds won’t get insurance after the end of this year. The industry has so far handled all this with some skill but it has set a timebomb ticking. 2013 might sound a long way off at the moment but as that cut-off looms closer and the reality of flood insurance suddenly being much harder to find, at least at affordable rates, there could be a political explosion that will be hard for the ABI to contain.]]> tag:blog.appgifs.org.uk,2008://10.51483 2008-07-15T09:53:49Z 2008-07-15T10:13:19Z

I have often wondered at the informal hierarchy of the City and its financial institutions which always seems to put bankers at the top of the tree. Do they deserve to be there? The case for such pre-eminence looks very...

David Worsfold I have often wondered at the informal hierarchy of the City and its financial institutions which always seems to put bankers at the top of the tree. Do they deserve to be there? The case for such pre-eminence looks very shaky to me. It seems that the live on the edge of the fool’s paradise of power without responsibility. Is that abit harsh? Just look at the current economic crisis gripping the developed world and ask yourself where does the responsibility really lie? Bankers have been at the forefront of persuading governments to adopt a light touch in regulating them and to hand over to(central) banks control over a lot of the central levels of economic policy. Have they used that freedom and control well? The answer has to be a resounding no. Irresponsible lending, the growth of financial instruments that are little more than gambling and a dreadful track record in running their own businesses – the charge sheet is very long and very serious. Will they be punished? Far from it. At the slightest hint of real trouble the banks have looked for state handouts and have largely been given them for the simple reason governments know they cannot afford a collapse in the banking system. Just look what happened in the UK when a relatively modest bank, Northern Rock, got into trouble and the government hesitated before stepping in. Bankers know that they are immune from the consequences of their decisions which is why they constantly make such bad decisions. It is a pity that they don’t display a little more humility and awareness of their responsibility for the pain other business and ordinary people are now experiencing. tag:blog.appgifs.org.uk,2008://10.51351 2008-07-01T07:49:42Z 2008-07-15T10:13:19Z

The steady flow of stories about MPs, MEPs and Peers abusing expenses are doing huge damage to their credibility, standing and support among the general public. This, in turn, damages and undermines the entire political system. I know many senior...

David Worsfold Incisive Media – continues to work with the All Party Parliamentary Group on Insurance & Financial Services to provide that starting point. They genuinely want to hear from you and many people who meet the senior members for the first time will tell you how taken aback they are by their knowledge of the financial services sector: proof alone that some of that cynicism is miss-placed.]]> tag:blog.appgifs.org.uk,2008://10.51233 2008-06-19T14:36:09Z 2008-07-15T10:13:19Z

The Financial Services Authority's sudden move to demand greater transparency from hedge funds is very welcome and shows a degree of determination to cast light into the more mysterious corners of the markets that outstrips past reforms. Predictably, it has...

David Worsfold The Financial Services Authority's sudden move to demand greater transparency from hedge funds is very welcome and shows a degree of determination to cast light into the more mysterious corners of the markets that outstrips past reforms. Predictably, it has brought protests in its wake. At the front of the queue of complainants are the hedge funds themselves who now suddenly face the prospect of having to explain themselves when short-selling stock that is the subject of a rights issue. What do they have to fear? If they have good reasons for doing this – beyond making themselves millions – then I am sure the intelligent people who run these funds will be able to articulate those reasons. If the reasons are threadbare and amount to little more than gambling on the failure of a rights issue then they will be exposed as such. I will be interested in the explanations because I have never quite understood why an institutional fund manager would lend stock to a hedge fund to drive down the price of shares in their portfolio. I always thought that fund managers liked to think they added value to a firm by holding its shares, not destroyed value. So, there might be an element of protesting too much about the squeals from the hedge funds. The nervousness this pre-emptive FSA strike has induced elsewhere in the market, I understand a little better. The FSA has always consulted widely before making major changes, almost over-consulted some would say. Does this move herald an era of more aggressive action on the part of the regulator?More of a take it or get out attitude? I don't know but I do know that it is the fear of many in the markets regulated by the FSA that it could be the dawn of a new reform culture down at Canary Wharf with less asking how people would like to be regulated and rather more telling them how they are going to be regulated. tag:blog.appgifs.org.uk,2008://10.51150 2008-06-11T15:28:38Z 2008-07-15T10:13:19Z

Reform of insurance contract law is long overdue. Relying on the Marine Insurance Act 1906 as the legal basis of all modern day insurance contracts - life and general - is just plain daft. It has long since ceased to...

David Worsfold Association of British Insurers, spurns the opportunity. Surprised? shocked? I certainly was and so were members of the All Party Group when they heard the ABI's reaction to the Law Commission proposals this morning. The Law Commission's proposals are hardly a surprise and seem a very reasonable response to the weight of evidence it had from the industry and consumers. What is proposed is a sensible modification of the utmost good faith principles for personal lines insurance. The Commission wants to remove any remaining sense of obligation that might linger for consumers to answer questions that haven't been asked. It then wants claims to be paid to "honest and reasonable" consumers even when a mistake has been made, that mistake itself also being subject to the "honest and reasonable" test. No more hiding behind irrelevant or minor non-disclosure. If the consumer has been "careless" (again, the Commission's word), then the claim should be treated as if the correct information had been given at the policy inception; and, if the claimant, is dishonest, the claim should be declined. Many would say this regime should provide a welcome degree of certainty based on no more than best current practice in the market. Instead, the ABI pleaded that it should be left the a combination of the Financial Services Authority (and its Treating Customers Fairly regime) and the Financial Ombudsman Service. It is hard to think of a combination that would generate more uncertainty and retrospection than a fluid regulatory regime. This reform of insurance contract law is suddenly in danger of becoming a huge lost opportunity for the industry to align itself with the interests of consumers to the benefit of both. An urgent rethink is required.]]> tag:blog.appgifs.org.uk,2008://10.50939 2008-05-21T14:36:04Z 2008-07-15T10:13:19Z

The tough lessons from the floods last year are still being learnt. Environment minister John Healey spent yesterday touring various caravan villages in the north of England to see at first hand how the 1400 people still living in caravans...

David Worsfold debating how to deal with the problems in the future. The two most striking lessons that come out of the ministerial visit and the Lords' debate are both quite tough to take on board. Several of the people still stuck in caravans complained that they would have been back in their homes by now if initial drying out and repairs had been done properly. This is a realisation of a fear that many in the insurance industry voiced in the immediate aftermath of the floods. Some loss adjusters and insurers were privately very critical of the way local authorities were trying to score points by getting people back into flood affected properties faster than insurers could: they warned that it could, indeed would, backfire and have sadly been proved right. While there is no doubt that a proportion of those 1400 still in caravans were insured and will have stories of delay and incompetence to tell, they will pale into insignificance compared to those who were not insured or were local authority tenants. To be fair to some of the local councils, they have done their best but have been struggling because of the lack of central government support - especially financial - to help them deal with such exceptional circumstances. In the Lords, the tough lesson was about setting priorities. This, it seems, is especially true when weighing up the cost of letting agricultural land flood versus letting towns flood. Rural interests were chided by Lord Davies of Oldham, the government minister, for attacking the Environment Agency for not doing enough to protect agricultural land from flooding. As Lord Davies and several other peers pointed out, the flooding of fields is often essential in order to protect towns and that is where the priority lies because of the greater threat to people and property.]]> tag:blog.appgifs.org.uk,2008://10.50879 2008-05-16T07:50:11Z 2008-07-15T10:13:19Z

The government has declared its legislative hand for the next session months ahead of the usual autumn Queen's Speech. Largely dismissed by commentators as a gimmick to cover up the electoral disasters swirling about its head, the programme has plenty...

David Worsfold egislative hand for the next session months ahead of the usual autumn Queen's Speech. Largely dismissed by commentators as a gimmick to cover up the electoral disasters swirling about its head, the programme has plenty of potential interest for the financial services sector. Most eyes instantly alighted on the Banking Reform Bill which will attempt to clear up the huge regulatory confusion and scope for buck-passing that dominated the early weeks of the Northern Rock collapse. It will also, controversially, try to put into law the enhanced compensation arrangements for bank customers should another bank go under. These were racked up to 100% for deposits up to £35,000 last October to stop the run on Northern Rock but like most panic measures they are devoid of logic and consistency. There is no reason why bank deposits should be a special case for enhanced compensation: they are no more or less important to people than their pensions, life assurance and other forms of saving. If the banks want special arrangements, they should fund them themselves, something they have been reluctant to do, expecting the public purse to bail out commercial incompetence in their sector. Plenty of rows ahead on that one. The insurance industry was predictably pleased about the pledge to follow up the recommendations of the Pitt review on the response to last year's serious flooding. Any backsliding on this would have attracted alot of criticism. The Welfare reform Bill will also be worth keeping any eye on as the government has said this will extend medical assessments and the development of personalised return to work programmes which should give a further boost to the rehabilitation sector. One of the biggest bust-ups, however, will probably be over something that wasn't mentioned by Gordon Brown: pleural plaques. Since the House of Lords ruled that pleural plaques cannot give rise to a compensation claim, the trade unions and claimant lawyers have been up in arms. Their arguments are very emotional and based on a cynical exploitation of people who have pleural plaques. They stoke up irrational fears about other asbestos related diseases and then try to claim for emotional distress. Expect them to target the Law Reform, Victims and Witnesses Bill for a trade union sponsored amendment to reverse the House of Lords' ruling. The industry needs to be on its guard.]]> tag:blog.appgifs.org.uk,2008://10.50799 2008-05-09T07:40:35Z 2008-07-15T10:13:19Z

For the first time in a decade there is a realistic prospect of a change of government at the next General Election, now certain to be in the first half of 2010. Regardless of one's personal political persuasion, this has...

David Worsfold For the first time in a decade there is a realistic prospect of a change of government at the next General Election, now certain to be in the first half of 2010. Regardless of one's personal political persuasion, this has to be good for the country as governments without a serious opposition tend to become arrogant and detached. This is almost always the inevitable fate of governments and Prime Ministers who win three elections in a row: it has happened to Tony Blair and Labour, just as it happened to Margaret Thatcher and the Tories 20 years earlier. Blair went according to his own timetable while Thatcher had to be forced out. The aftermath was remarkably similar, however: Chancellor succeeds to premiership, party suffers divisions and gets caned in the local elections. Then what? The City, of course, is excited by the prospect of a Conservative government and suddenly Conservative spokesmen are in demand and speaking to large and engaged audiences in the financial services sector. They don't appear to have much of substance to say but they are being listened to and taken seriously. But are you really listening to the next cabinet or will we still have a Labour government well into the next decade? John Major was in the same position as Gordon Brown in 1990 and 1991 but by the middle of 1992 he was able to fashion a General Election victory in the last ten days of a campaign that had previously looked to have only one winner, and it wasn't the Tories. This proves nothing beyond the huge uncertainty and unpredictability of politics but it should serve as a cautionary reminder to City firms, financial institutions and their lobbyists not to get too excited about the prospect of having their 'friends' in government and certainly not to the extent of forgetting to engage with the current ministers. Labour will be running the country for another two years which is a very, very long time in politics. tag:blog.appgifs.org.uk,2008://10.50535 2008-04-14T13:11:01Z 2008-07-15T10:13:19Z

Lord Hunt has hit several nails firmly on the head in his review of the Financial Ombudsman Service. His demand that it breaks out of its middle class enclave is a bold one and not to everyone's liking. Similarly, he...

David Worsfold Lord Hunt has hit several nails firmly on the head in his review of the Financial Ombudsman Service. His demand that it breaks out of its middle class enclave is a bold one and not to everyone's liking. Similarly, he has ruffled a few institutional feathers by proposing that consistent poor performers should be named and that moves towards publishing more firm specific data should be put in hand. He does his best to limit the shock of such proposals by suggesting that the best performers should be publicly acknowledged through an awards programme. This all makes alot of sense. Various well-meaning initiatives to improve standards across the financial services sector have failed to have the desired impact because they always take fright at the thought of publishing firm-specific data. The Association of British Insurers' Claims Code was a case in point. It had a solid set of benchmark measures of service quality that everyone in the industry agreed were reasonable - and the more honest accepted were not especially challenging - but mention the possibility that the performance of firms against those standards might be published and you would be left wondering at the ingenuity of some people in thinking up reasons for not doing something so obvious and so beneficial. Lord Hunt addresses many of these points. The review encourages the FOS to do more to set out its own stall rather than rely so much on firms to promote it: this is an absolute must. Abit more surprising is the suggestion that it might change its name to the Financial Complaints Service. But Lord Hunt is right: "ombudsman" is a very intimidating, very middle class word and if, as its remit extends into areas such as consumer credit, the FOS is to reach the people who buy these products it needs to become accessible to large numbers of people with whom it currently appears to have no relationship. One area where he suggests more work needs to be done and which I hope doesn't get lost is the compensation limit of £100,000. I can accept that many of the arguments for and against the retention of this limit (set by the original Insurance Ombudsman back in 1982) justify his criticism that they are assertions short on evidence but it really doesn't take much to generate a problem worth £100,000 nowadays and there is a danger that the drift towards taking large cases to court will grow stronger if something isn't done to raise the limit. Indeed, the industry must ask itself what it has to fear from this. tag:blog.appgifs.org.uk,2008://10.49734 2008-02-01T10:11:40Z 2008-07-15T10:13:19Z

The Treasury's latest response to the Northern Rock crisis seems to me a grave backward step in bank regulation. I refer to the proposal that in future any Bank of England support for an ailing financial institution should be done...

David Worsfold The Treasury's latest response to the Northern Rock crisis seems to me a grave backward step in bank regulation. I refer to the proposal that in future any Bank of England support for an ailing financial institution should be done on the hush-hush. Apparently, the Treasury and the Bank have convinced themselves that the Northern Rock crisis was all the fault of the media for telling people that it was being supported by the Bank. Hardly. Northern Rock hit the buffers because its dimwitted board fooled itself into adopting a deeply flawed business model that couldn't withstand even the initial stresses of the nascent credit crunch last summer. It therefore went cap in hand to the Bank of England and, as soon as the news of central bank support became public, the queues started to form outside Northern Rock's branches. In future, says the Treasury, such support should be kept secret to prevent people with their savings invested in a failing institution knowing that their money might be at risk. I thought this was the era of transparency but I obviously got that one wrong. I fully accept that by making public the need for central support you are likely to prompt people to worry about the security of their savings but surely they have a right to know. It just cannot be the right way of doing things in the 21st century to allow City bigwigs to fix up a deal - which may or may not work - behind closed doors and keep investors in the dark. It is a deeply patronising attitude that almost seems a throw back to another era. It will be entirely to the good if the threat of having your investors know you are in trouble remains. It should provoke greater caution among managements who think they have come up with another "too good to be true" way of bucking the markets and leaving their competitors in the shade. The "What if?" testing of the risks in their business model should inject a greater note of caution if the ghosts of Northern Rock and its queues of anxious customers looms over their shoulders. Banish those ghosts and you take away some of the fear of the consequences of failing to run a responsible business. tag:blog.appgifs.org.uk,2008://10.49606 2008-01-21T11:31:20Z 2008-07-15T10:13:19Z

It seems that the All Party Group's report on the Financial Ombudsman Service has caused abit of a stir. Saturday's Money Box on Radio 4 featured a debate between Chris Cummings of the Association of Independent Financial Advisers and the...

David Worsfold All Party Group's report on the Financial Ombudsman Service has caused abit of a stir. Saturday's Money Box on Radio 4 featured a debate between Chris Cummings of the Association of Independent Financial Advisers and the group's chairman, John Greenway. AIFA's response to the Hunt Review included a call for a fee to be levied on consumers to deter vexatious and frivolous complaints and, when pressed by Paul Lewis on the programme, Chris Cummings put a figure of £400 on the sort of fee that should be applied. This is substantially higher than any of the organisations that came to the group to put this point suggested and I think further underlines that the group was right to reject the idea, saying "The group is not in favour of introducing fees whereby the consumer pays to get access to FOS (even where such fee is refunded where a case is upheld), as it is felt that this might deter some consumers with genuine grievances. The group understands the industry’s concerns about mischievous complaints but considers the danger that even one genuine complaint might not be submitted because of the imposition of a fee to be too much of a risk". John Greenway also warned that imposing a fee – even a refundable one – would risk driving complainants into the hands of ambulance chasing lawyers and even direct to the courts, all of which would be far more damaging to the small advisers AIFA is trying to protect. As Mr Greenway pointed out, the Hunt Review is meant to be about improving accessibility of the Financial Ombudsman Service and talk of fees is hardly going to achieve that.]]> tag:blog.appgifs.org.uk,2008://10.49541 2008-01-15T09:37:31Z 2008-07-15T10:13:19Z

The report from the All Party Parliamentary Group on Insurance & Financial Services on the future of the Financial Ombudsman Service makes several interesting recommendations. It comes out with some clear recommendations on the binding limit and the need for...

David Worsfold report from the All Party Parliamentary Group on Insurance & Financial Services on the future of the Financial Ombudsman Service makes several interesting recommendations. It comes out with some clear recommendations on the binding limit and the need for a much clearer appeals process. It is worth reading. Having sat through the presentations from the Ombudsman, industry and consumer representatives, I can vouch for it being a very even-handed review. There is something in it for everyone and somethings that will not be to their liking as well. For instance, the Ombudsman will not be happy about the suggestion that an independent appeals process should be introduced as it has opposed this in the past. Industry representatives pressed for a refundable fee to be introduced but this was rejected. Most of the recommendations now go to the Hunt Review and it will be up to Lord Hunt to sift through the many differing views he will receive. Some of the group's recommendations about banking regulation and law, however, fall way outside the scope of the FOS review and will be taken up separately with the Financial Services Authority and the Law Commission. These may prove the more controversial in the long run.]]> tag:blog.appgifs.org.uk,2008://10.49490 2008-01-09T09:10:34Z 2008-07-15T10:13:19Z

The need for the insurance industry to be constantly vigilant on the fall out from last summer's floods was amply demonstrated in the House of Commons on Monday evening when the MP for Tewkesbury, Laurence Robertson, held an adjournment debate...

David Worsfold Laurence Robertson, held an adjournment debate on the continuing problems and outstanding issues. His main focus was the need to plan for the future with better flood defences and co-ordination among the various authorities with responsibilities in this area but he also reminded MPs and ministers that there are several hundred households still not back in their homes. While he was mild in his criticism of the insurance industry for this, it was clearly on his radar screen. He also raised concerns about the cost and availability of insurance in the future. The industry has done remarkably well on all fronts since last summer's floods. On the ground, its response has won widespread praise and in the corridors of power it is winning the arguments about higher spending on flood defences and better co-ordination. It has also obviously done a very good job in keeping people well informed about progress on repairs and managing their expectations as there has been very little criticism of the industry from the estimated 1250 households in Gloucestershire alone who are not fully back in their homes. The message to the industry - especially the Association of British Insurers - has to be keep it up, don't ever think this is last year's issue because MPs with constituents still living in caravans certainly won't.]]> tag:blog.appgifs.org.uk,2008://10.49460 2008-01-04T09:34:00Z 2008-07-15T10:13:19Z

The first tentative steps in the government's long trek to recover its credibility were announced this morning when the Chancellor, the beleaguered Alistair Darling, announced plans about plans for tackling the next banking crisis. The trouble is they haven't solved...

David Worsfold plans about plans for tackling the next banking crisis. The trouble is they haven't solved the last one yet. Northern Rock still looks like one huge financial black hole with billions of public money being poured into it but no plan in place to recover it. The attempts to engineer a private sector sale seem to be running into the sand because of opposition from shareholders. It still looks to me as if the only sensible option is to nationalise it, strip it down to its components and then sell off those that are viable, using the proceeds to repay the huge sums that have been required to prop up this lame duck. Why the reluctance to do this? Shareholder power seems the common excuse. But are these the most important people? I would argue no. First and foremost are the savers whose money is with the bank and these, at least, now look safe. Then, there is a careful juggling act between the needs to look after the staff and repay the loans. Only after that should shareholders get a look in. Is this harsh? Investing in the stockmarket is a risky investment with potentially high rewards - but investors have no right to expect all the upside and then be sheltered from the downside. Northern Rock shares were a hot buy a year ago as its "too good to be true" story seduced people, many of whom should have known better. It will be interesting to see the detail of the government's plans when they come out next month but unless they stop pussyfooting around the problem of what to do about shareholders they won't solve the current crisis let alone create a viable plan for dealing with the next one.]]>