LONDON - Shares of British insurers slumped Friday after the Financial Conduct Authority confirmed it planned to conduct a review later this year on whether long-standing customers were being treated fairly by their insurers.
The authority, which regulates financial firms, said Friday that it would officially announce the review on Monday as part of its business plan for the year.
The review comes just over a week after the British government announced plans to radical change its pension and savings policies, including allowing consumers to take their state retirement as a lump sum or a draw down over time, rather than being forced to buy an annuity at retirement. Consumers also will be able invest up to 15,000 pounds, or about $24,940, a year in cash accounts or stocks tax-free as part of the changes.
Insurance stocks here have been weaker since the pension changes were outlined by George Osborne, the chancellor of the Exchequer, as part of the government’s 2014 budget on March 19.
“The work on fair treatment of long standing customers in life insurance is a supervisory piece of work that will give us a better understanding of how this area functions,†the F.C.A. said in a statement on Friday. “We are not planning to individually review 30 million policies, we will be speaking to firms about how we can undertake that review.â€
The Daily Telegraph, a British newspaper, first reported in its editions on Friday that the review would include life insurance and other retirement products that were sold by salesman door-to-door on commission and carried hefty exit fees if a consumer wanted to move to another retirement planning provider.
“As a forward looking regulator, we want to examine areas that are of interest and relevance to consumers and to firms and assess whether there is an issue that requires any action,†the F.C.A. said. “No conclusions have been reached as work has not started.â€
Still, news of the review sent several insurers that make up the FTSE 100 index on the London Stock Exchange lower on Friday. Shares of Resolution, the owner of Friends Life, was hit the hardest, dropping 13.8 percent to 275 pence, in trading on Friday afternoon.
Aviva fell 7.4 percent, while Legal & General declined 6.6 percent. Prudential was off 4.3 percent and Standard Life was down 3.9 percent. Old Mutual was off 0.9 percent.
In his budget announcement last week, Mr. Osborne, the British chancellor, said that consumers would be able to put up to £15,000 a year in so-called individual savings accounts that can either be all-cash, all-stock or a mix of the two. The accounts are used to supplement retirement savings and differ from a traditional savings account.
Previously, there was a limit of £11,520 and no more than half of that could be in cash. The amounts also were required to be held in separate accounts.
He also announced a government-backed bond plan in which people 65 years old and older would be able to invest as much as £10,000 annually and scrapped rules that forced retirees to invest their state pension savings in annuities.
The changes are expected to severely pressure annuity sales by insurers by providing consumers more options to ensure a steady income stream in their old age.
