Life Insurance

Oral Answers to Questions — Treasury – in the House of Commons at 12:00 am on 1 March 2001.

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Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry) 12:00, 1 March 2001

If he will make a statement on the performance of the regulatory authorities in respect of with-profits life insurance [150146]

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

The Financial Services Authority took responsibility for the prudential supervision of insurance companies on 1 January 1999. With-profits business forms a significant part of that responsibility. Howard Davies announced an FSA review of the with-profits business last Friday.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

Does the Minister agree that when the Government are encouraging millions of inexperienced investors to put their money in some new products, such as stakeholder pensions, it is vital that the regulator must be seen to act in the consumer interest in cases of mis-selling and the irresponsible assumption of liabilities risk, as occurred at Equitable Life?

Specifically in relation to the inquiry that is under way, will the Minister undertake to look not merely at the misregulation of the FSA, but at the events of the early and mid-1990s when, inexplicably, reporting standards on the industry relaxed and the Government regulator of the day appears to have completely ignored the impact of falling interest rates and falling inflation on the sustainability of guaranteed annuities?

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

As I am sure the hon. Gentleman is aware, the FSA was set up with the important objectives of recognising the needs of consumers and, indeed, to educate consumers. In addition, the FSA has a consumer panel. That is an important part of the FSA's remit, and I entirely agree with the hon. Gentleman that it is an important focus of its work. Indeed, that is why we set up the FSA.

The FSA's report will cover both its role as a prudential regulator and the Personal Investment Authority's role as a conduct of business regulator. The report will look into the background and events leading up to the point at which responsibility for prudential insurance regulation moved to the FSA.

Photo of Jim Cousins Jim Cousins Labour, Newcastle upon Tyne Central

Does my hon. Friend accept that there needs to be more clarity about how bonus payments within with-profits policies, particularly terminal bonus payments, are decided?

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

The FSA's report is yet to emerge. When it does, we will study it carefully to see what issues are identified in relation to the history of Equitable Life and the events surrounding its closure for further business. I hope that my hon. Friend agrees that, without seeing the report, it is premature for us to draw any conclusions at this point.

Photo of Anne McIntosh Anne McIntosh Conservative, Vale of York

I declare an interest in that I hold a with-profits insurance policy. Will the Economic Secretary explain why neither the Treasury nor the regulator took a proper interest in this matter when the original action was taken to block new members taking policies with Equitable Life?

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

All these matters are clearly monitored by the Financial Services Authority. It is producing a report and, when it does, we will have some conclusions to study.