Insurers warn on Sandler cuts

THE insurance industry's leading lobby group has warned that Ron Sandler's recommendations on solving Britain's savings crisis would fail unless they were accompanied by increased tax breaks to encourage people to put more aside for their retirement.

Independent financial advisers also raised doubts about whether the proposals would lead to increased savings, saying they may result only in consumers buying the wrong products.

The Association of British Insurers' warning came as the industry braced for another round of cost-cutting in response to Sandler's calls for simpler, more-transparent products which incur lower fees.

There are also fears that the push to cut product charges will wipe out many smaller insurers as bigger competitors capitalise on the lower overheads stemming from economies of scale.

Leading insurers welcomed the proposals for slashing costly red tape and Sandler's suggestions for improving customer service. They were also relieved that the report did not recommend the abolition of with-profits policies, as some had forecast. However, they said many of the suggestions could take a long time to introduce and may prove better in theory than in practice.

'For the industry as a whole it is true that costs will have to come down and rationalisation is a trend that will continue,'Prudential chief executive Jonathan Bloomer said. 'But we are pleased the report recognises that with-profits products suit some people and can be beneficial to the consumer.'

Norwich Union Life chief executive Philip Scott said the recommendations would help reduce the savings gap by making products simpler and cutting the cost of regulation. 'But there is going to be a lot of work to do to turn some of these recommendations into practice,' he said.

Dave Lowe, head of marketing at GE Life said:? 'I am concerned that Sandler seems to have underestimated the importance of advice and guidance, even at the lower-contribution end of the market.

'Everyone in financial services recognises the importance of independence, and strengthening the position of the independent adviser should be welcomed.? However, I am concerned that the proposals may have the reverse effect by causing quality independent advisers to reconsider their status.'

ABI deputy director-general Stephen Sklaroff said the report was the attack on the industry some observers had predicted.

Commerzbank analyst Andrew Goodwin said Sandler's support for with-profit products and the long delays that were likely in implementing his proposals meant the report was positive for the sector. But he said this had been overshadowed by concerns about the longer-term trends on the stock market.

Shares in Aviva, formerly CGNU, fell 13p to 484p, Prudential 9p to 576p and Legal & General 1 1/2p to 122p.

Consumers' Association calls for structural change

THE Consumers' Association welcomed the Sandler review, saying that it 'nails the industry line that it serves the consumer interest'.

It said: 'Sandler has confirmed CA's assessment of poor products, bad advice and failed regulation. Now is the time for industry and government to acknowledge the diagnosis of the problems and focus on the solutions.

'In relation to with-profits funds, CA fully endorses the finding that transparency is not enough and that structural change is needed to redress the balance between shareholders and policyholders.

Consumers' Association director Sheila McKechnie said: 'This is a powerful report. It has correctly diagnosed the fundamental failings of the financial services industry. It shows that sole reliance on information and the market to deliver does not work. The products are too complex.

'It offers a way forward which focuses on the needs of consumers not industry. There are some fundamental challenges here for industry, FSA and the Government. The litmus test will be whether the industry and the regulatory regime are fit to meet them and whether Sandler's sensible recommendations become a reality for all consumers.

'The review has tackled many of the problems facing consumers long term. The Government will now face a challenge to ensure that consumers in the short term who are imprisoned by bad products and who have been mis-sold are able to seek redress.'

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