Insurers should welcome the announcement earlier this week by Treasury minister Mark Hoban (pictured left) about the UK government plans for implementing the recent European Court of Justice ruling outlawing the use of gender as a rating factor when setting insurance premiums. It does, as Mr Hoban claims, deliver certainty in the run-up to the December 2012 cut-off.

It seems likely that one effect of the UK approach - which rules out any retrospective re-rating - will be a big 'buy now while stocks are legal' push in the latter half of next year. While I can imagine this will have some appeal to motor insurers specialising in the female market, I think it will be underwriters of long term insurance classes such as life assurance that will be most attracted by this approach. Any advantage from buying a gender-rated motor or travel policy is short-term as the contracts only last for a year but with life insurance the term can be 25 years or more, effectively locking in a pricing advantage for life. Term assurance for women could be a big seller.

Looking further ahead, Mr Hoban was right to focus the industry's attention on the need to head off a similar threat to age-related underwriting. I don't think this is as serious as some scaremongers are suggesting because there doesn't appear to be the sort of abuse of it as there was has been with gender. With gender too many insurers lazily used it as a proxy for other factors. I just don't see that to the same extent with age, although travel insurers (why is it always them?) do seem to use it as a proxy for health: this has to stop.

Mr Hoban appealed to the industry to lobby hard to get its right to use age as a rating factor enshrined in European Union and national legislation. This is a sensible call but the industry needs to firstly ensure that its own house in in order. This is a Europe-wide challenge. UK travel insurers are probably not the only group of insurers across Europe who need to clean up their act. Once it has done that it should build a consensus with the most influential organisations representing older people so that any lobbying is not easily dismissed as special pleading on the part of a narrow commercial sector.

With an ageing population it is vital that insurers have the flexibility to use age as a rating factor as products will need to develop and change to meet the needs of older people. I can think of few greater disincentives to developing products that are suitable for people at different stages of their life than a crude ban on age-related underwriting.

 

It has taken far too long and the scheme is still too tightly drawn but at last Equitable Life policyholders know when the compensation they have argued for a decade will start to flow.

The announcement yesterday by Treasury minister Mark Hoban that we are still probably at least a year away from getting compensation into the hands of Equitable Life policyholders falls some way short of the expectations that the coalition government partners raised during the General Election campaign just three months ago.

I pointed out at the time just how unusual it was to see such specific pledges in election manifestos but both the Conservatives and the Liberal Democrats followed through their longstanding criticisms in Parliament of the Labour government on this issues with clear cut promises.

"We will implement the Ombudsman's recommendations to make fair and transparent payments to Equitable Life policyholders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure" - p12, Conservative manifetso.

"We will make pensions and benefits fair and reward savers by...meeting the government's obligations towards Equitable Life policyholders who have suffered loss. We will set up a swift, simple, transparent and fair payment scheme" - p18, Liberal Democrat manifesto.

We can certainly say there is nothing "swift" in what has been proposed. Mr Hoban made it clear that there are several stages to go before any money finds its way into the hands of policyholders who will be especially disappointed to hear that yet another commission is going to be set-up, albeit with the more encouraging brief of advising on the best way to allocate payments. This is expected to report in January next year with the best estimate of when compensation payments might actually start flowing being the middle of 2011.

I still struggle with the need to keep setting up more and more committees, enquiries and commissions, certainly for this final stage of calculating and distributing payments. We have a very good mechanism in place already for handling compensation claims - the Financial Services Compensation Scheme. The FSCS has already proved itself very capable of acting beyond its original remit with the way it responded to being tasked by the last government to hand out £7.4bn of public money to the 300,000 savers with the collapsed Icelandic banks. Equitable Life requires less money to be distributed to more people and the calculation of losses on different types of pension plan are much more complex than with bank savings plans: this just further reinforces my view that we should make a start on this by using the expertise and systems that are already tried and tested.

The next problem is sorting out just how much the Treasury is prepared to put on the table and this is where the government does seem to be getting into some difficulty. The report from Sir John Chadwick - commissioned by the last government to come up with a limited scheme to compensate those worst affected - was also published yesterday and it has some extraordinary figures ranging up to £4.8bn for the relative loss suffered by policyholders. It is, of course "relative loss" that the Tories focused on in their manifesto with the important qualification "as a consequence of regulatory failure". Some headlines today have suggested that the actual compensation fund could be set as low as £500m. This figure has been arrived at by taking Sir John's lower range of £2.3bn to £3bn for absolute loss together with his suggestion individuals be paid only 20% to 25% of that. The chances are that this approach would have been broadly adopted by the Labour government but it doesn't really match up to the promises that the coalition partners have made.

The two big problems that are really contributing to the further delay are the need to focus on the proportion of the relative loss caused by regulatory failure. A fair chunk of that £4.8m is generated by the fact that comparable life companies have performed very well in the intervening years and policyholders need to be told that they cannot expect to be compensated for a poor choice of fund managers: that is how markets work. What they can be compensated for is the failure of regulators in the early 1990s to pick up on how Equitable Life was over-stretching itself by promising guaranteed returns that were not achievable, at least not without huge detriment to non-guaranteed annuity policyholders. We are still no nearer to putting a percentage on that, although maybe Sir John is trying to help us in the right direction.

The other problem is the Treasury's over-riding desire to cut public expenditure significantly and Mr Hoban acknowledged the importance of this in his speech to Parliament yesterday: "This scheme will be a significant spending commitment for this government and cannot be considered in isolation from the other spending decisions that it will need to make over the coming months and what is affordable in that context".

Where does this leave us? It leaves us waiting for the government to put a sum of money on the table. This is what should have been done some years ago. I actually do not think you can ever really pin down just what proportion of the losses suffered by policyholders are down to regulatory failure and what proportion is down to all those other factors constantly present in the savings, investment and annuities markets, so you might as well put an ex gratia sum on the table and get on with distributing it. Regardless of the figures Sir John Chadwick has come up with I have always thought that anything over £1bn would satisfy most of the political campaigners for compensation, although unlikely to appeal to the more ardent members' action groups. Funny enough if you apply Chadwick's 20% to 25% cap to his estimates of relative loss rather than absolute loss you get to this sort of figure. In the current political and economic climate a settlement of £1.2bn to £1.5bn would be seen as very reasonable and I think that is where we will end up.