This piece first appeared in the money section of the Saga website on 16 July 2008
The text here may not be identical to the published text

FAIR COMPENSATION FOR EQUITABLE LIFE VICTIMS?

Thousands of pages, more than a million words, four years of work. But one conclusion. The agencies which were supposed to regulate insurance companies and protect us when they went wrong failed to do their job over Equitable Life.

The title of the Parliamentary Ombudsman’s report says it all – Equitable Life: A Decade of Regulatory Failure. And in it Ann Abraham sets out in forensic detail what went wrong.

Between them these top offices of state allowed the biggest financial scandal of the turn of the century to trap more than a million people in a fund which exaggerated the value of their investments and then, inevitably, cut them back.

But the Ombudsman says clearly that not all Equitable customers lost money as a result of these failings. And she does not suggest that taxpayers should step forward to honour Equitable Life’s impossible promises. Her conclusion is more complex.

If the regulators had done their job properly the public would have seen in the 1990s the mess that Equitable Life was in. New customers would not have joined and existing investors would have left. If the FSA had closed the company down in July 2000 instead of leaving it until December tens of thousands of people would not have put money into a company that was effectively bust. And if the FSA had not misled policyholders in 2001 about the company’s solvency they could have taken their money out sooner. As one adviser said to me at the time – it was never a bad time to take your money out of Equitable Life. Because the longer you delayed the worse it got.

So Ann Abraham wants a fund set up to determine how much people have actually lost as a result of these failings and to compensate them accordingly. Compensation worked out like that will be far less than the amount people feel they have lost. Victims look at the sum wrongly promised and deduct what their investment is worth now and see the difference as their loss. But it is not. It is partly the gap between fantasy and reality. Indeed, some people may have made more money with Equitable despite its failings than they would have earned with one of its rivals which is still in business.

The Ombudsman reckons it would take six months to set up such a scheme and two years for it to finish its work. But before that the Government has to say whether it will accept her recommendations at all.

This sorry tale has a long way to go yet.


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