The FSA is consulting on exempting Holloway products from RDR fee-based payments, but the devil is in the detail as the exemption would not apply to all products.
The result is that Holloway providers will have to make a business decision whether they still wish to sell products that will not be covered by the exemption.
Holloway insurance policies combine IP and an investment element. There are 11 active Holloway providers. The main aim of most of the policies is sickness protection rather than savings, and the effect of the FSA proposal would be to set this in stone.
This makes intellectual sense, if one looks at the issue narrowly. If the investment element is significant in comparison to the premiums paid, for example if payouts have exceeded total premiums, then the FSA consider the policies to be comparable to other with-profit savings. And where the investment element is a small sum, it is more comparable to a standard IP product. But where to draw the line?
The FSA proposes a threshold where the projected maturity value is 20% or less of accumulated premiums, using the mid-rate projection of the Holloway provider. The provider would have to determine which policies fell under this threshold and inform the IFAs selling those policies whether the RDR rules applied.
The FSA estimates that among the £4m aggregate new business premium income for Holloway policies in 2009, 70% of new business premium income relates to policies below or near the proposed threshold. But this begs the question as to how much the accrued premiums actually are. I don't think we are dealing with major investment levels, whatever threshold might be adopted.
Moving from the narrow argument to broader issues, what the FSA proposal doesn't address is that these policies are mainly sold to lower socioeconomic groups who rarely save for a rainy day - or for a pension for that matter - and won't fork out for an adviser's fee. With the current credit squeeze, it is also increasingly difficult for them to obtain small loans or mortgages.
The first ‘Holloway' friendly society was established in Stroud in 1875, ‘The Stroud Working Man's Conservative Association's Sick Benefit Society' and it was based on a scheme devised by George Holloway (1825-1892), M.P. for Stroud. It was a new kind of friendly society which aimed to provide its members not only with a sum of money during sickness, disablement or for relatives at death, but also an annuity in old age.
Home ownership was also encouraged by the Holloway Societies, they were involved with assessing members' applications for mortgages.
George Holloway was an exemplar of the government's ‘big society' vision. So, while in the narrow sense, the FSA proposals do make sense. In the wider context, this review is a missed opportunity to revisit the Holloway concept and see how the government and friendly societies can work together to expand their membership and scope to fill in some of the gaps left by our austere times for less well off working people.
Regulating away savings is not the right direction of travel. If a threshold is needed why not set total financial limit based on an average premium and length of policy? That could weed out those who can afford adviser's fees from commission based sales.
Richard Walsh is a director and fellow of SAMI Consulting
www.samiconsulting.co.uk
