The with-profits insurance scam

Wed, 22 Nov 2006

With-profits insurance policies are coming under renewed fire from the financial services sector. Many investors who were sold with-profits schemes promised at low risk/high return have apparently not received a penny of profit.

According to the magazine Money Management, many of these policies have actually lost money for their investors. These are not cowboy operations either, with several insurance companies including AXA mentioned.

Concerned experts question how investment companies have managed to lose money over the past five years. They point to good performance from the FTSE All Share index, good fixed-interest securities and excellent property investment returns, and wonder how companies have lost money?

Several experts are calling for an investigation by the Financial Services Authority amidst claims of over-charging and mismanagement.

With-profits policies are just one type of insurance policy, and generally operate by investing premiums and returning some measure of the profit to the policyholder. In the past, experts have drawn clear divisions between investment and insurance, making it clear that the boundaries between the two should not be blurred. The confusion resulting could be what we are seeing now in the backlash against poorly performing with-profits policies.
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