It wasn't an Equitable Life, Gordon

More headaches for the PM: the ombudsman says Equitable Life policyholders deserve billions in compensation.

by
Last Updated: 31 Aug 2010

After a four-year investigation, parliamentary ombudsman Ann Abraham has finally published her long-awaited report on the collapse of life insurer Equitable Life – and it makes pretty grim reading for the Government. She found that regulators failed miserably to inform the public about the true extent of Equitable Life’s problems, identifying no fewer than 10 instances of ‘maladminstration’ by the DTI, the FSA and the Actuary’s Department. She thinks the Government should now apologise and set up a compensation fund for the victims. Since some estimates put the total losses at about £4bn, this could be a very expensive business…

More than a million people lost up to 50% of their life savings when Equitable Life, the world’s oldest mutual insurer, almost collapsed back in 2000. However, its problems really began a long time before that: back in the 1960s, when it decided to start offering investors a guaranteed annuity rate when they retired. By the 1990s it was painfully clear that the sums just didn’t add up, and Equitable Life quickly realised that it couldn’t afford to meet its obligations. It tried to cut payments, but was prevented from doing so by the courts – and after months of searching fruitlessly for a buyer, it was forced to close its doors to new business and slash the value of its existing investments. It’s been winding down ever since.

The ombudsman thinks that the government should have done more to protect savers. In her fairly damning report, entitled ‘A decade of regulatory failure’, she outlines (at considerable length) all the ways in which the various regulators failed to recognise just how bad the insurer’s financial position was – and then allowed it to mislead the public about the risks to their money for years. She also said it was ‘iniquitous and unfair’ that the Government had failed to set up a proper enquiry back in 2001 to get to the bottom of the affair.

All of which is rather embarrassing for Gordon Brown – not least because he was presiding over the Treasury at the time, and as such must have been involved in all the Government’s decisions about Equitable Life. And opposition MPs have been queuing up to put the boot in today: ‘Gordon Brown has overseen a complete and repeated failure of regulation,’ said Lib Dem MP Vince Cable; ‘[He] cannot escape the blame for what happened on his watch’, said George Osborne.

So what’s he going to do about it? So far the Government has consistently refused to compensate the out-of-pocket policyholders – but the recent bail-out of Northern Rock has set a dangerous precedent. No decision is expected until September (to be fair, it will take them that long to wade through Abraham’s impenetrable report) but with the public coffers decidedly bare, the PM again finds himself stuck between a Rock and a hard place…


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