Insurer with-profits inherited estates offered shield from mis-selling claims

Proprietary insurers may no longer be permitted to charge compensation for mis-selling activity to inherited estates of with-profits funds under proposals in CP08/11. The FSA believes that the current rules do not provide enough incentive for proprietary firms to amend defective systems and controls and wants to put the cost squarely with shareholders rather than with-profits policyholders. The FSA acknowledges that the change might encourage policyholders to switch out of mutually-owned firms, where they are typically also owners, since their funds would not be similarly ring-fenced. If confirmed, the revised rule will come into force for redress payments made after 1 November 2008, irrespective of when the mis-selling occurred. Court approved schemes in place before that date would take precedence and ‘guarantee’ schemes would still be payable from the inherited estate.