Big shake-up for life insurers

A WAVE of takeovers in the life assurance industry is on the cards this week after a damning report on the long-term savings market by former Lloyd's of London chief Ron Sandler.

The wide-ranging report carried out for the Government is likely to sound the death knell for the sale of traditional with-profits savings plans. And the small insurance companies that will face problems coping with Sandler's tough new regime are likely to fall to predators.

The report will recommend the abolition of much of the industry's red tape. Sandler hopes that streamlining the sales process will lead to lower commission charges for customers. Stuart Tragheim of the Association of British Insurers said: 'Sandler pledged to clean up the industry and make its products more transparent, and this is exactly what he is doing.'

Traditional with-profits plans smooth out investments by holding back some returns in good years to boost payouts in bad ones. But the way this is done makes it difficult for customers to work out how bonuses are calculated, and Sandler is far from impressed.

He will also outlaw exit penalties, used by insurers to lock customers into with-profits plans. Prudential chief executive Mark Wood said: 'The scrapping of these exit penalties will cause special hardship for insurance companies that have not been prudent with capital reserves. But they are grossly unfair and it makes perfect sense to axe them.'

Analyst Ned Cazalet, of Cazalet Financial Consulting in London, predicted: 'Some life insurance companies will go to the wall if they get rid of exit penalties.'

Pension savers will benefit from another review headed by Alan Pickering, former chairman of the National Association of Pension Funds, that will be published on Thursday. It will recommend simplifying the industry and also give possible solutions to the crisis over final-salary pension schemes.