That gives its trade body, the Association of British Insurers, an enormous amount of heft and influence. It’s unfortunate, then, that for all the good work that the ABI undoubtedly does – not least in helping people hit by the recent floods – the needs of consumers typically come a distant second to those of its members.
Its main role as a trade body is, of course, to work on behalf of its members, but that constituency is where the ABI’s difficulties lie. They’re not in the class of the banks or energy suppliers, but the UK’s life insurers have a distinct tendency towards self-interest, with a pathological fear of working primarily in the interests of consumers – and therefore the long-term future of the industry. Take the response to an idea floated by pensions minister Steve Webb last week aimed at improving the malfunctioning annuity market.
He proposed a system whereby pensioners could switch their annuity to a better deal, rather than be tied down by an irreversible one-off decision. It’s not his best idea. In practice, insurers would respond by offering lower rates and/or levying chunky transfer or exit penalties.
But Webb deserves credit for recognising that radical change is needed. It might be half-baked blue-sky thinking, but at least he’s talking in terms of solutions (albeit with an eye on the grey vote in 2015). The insurance industry, through the ABI, merely continues to insist that it’s doing more than enough to improve the annuity market. Its response to Webb was entirely predictable: to shoot the proposal down in flames while failing utterly to produce any positive solutions of its own.
This is a market in which around half a million retirees are losing some £1 billion from their future pension incomes because they aren’t getting the best deal, according to 2012 research by the National Association of Pension Funds.
For many people it’s the most important decision they will ever undertake. The wrong choice could make the difference between a comfortable retirement and one blighted by financial hardship.
Last month the Financial Services Consumer Panel described the annuity process for many retirees as a “lottery” and warned of possible “exploitative” pricing by providers. In other words, insurers are making a lot of money out of people’s poor choices.
A few days ago, Conservative MP Richard Graham warned that annuities will be the next big mis-selling scandal – a view that has growing support.
The market is neither transparent nor competitive. The ABI has taken some positive steps, including an improved code of conduct, but self-regulation is inevitably dictated by self-interest.
Webb got it wrong on this occasion. Yet his intervention was well intended and far more positive than anything we’re hearing from insurers with the power to improve the pension prospects of millions.