Budget 2010: Insurers face review over policyholder protection

Insurers will face a Government review into strenghtening their adminstration processes to ensure policyholders get fair treatment should a provider go into administration.

In the Budget, Darling praised the insurance industry and the UK's prudential regulatory regime for insurers' ability to "stand up well during the global financial crisis".

But he says in the light of the Government's review of other insolvency regimes, the Government is "seeking to refine the administration regime for insurers".

The aim is to ensure continuity of payments and protection for policyholders, should an insurer go into administration.

Proposed changes also include legislation to ensure that if the Financial Services Compensation Scheme (FSCS) takes action to protect policyholders in life assurance contracts, there will be broadly the same tax treatment in place as if the FSCS had not intervened.

The ABI says the review is being launched for contingency reasons only, drawing on lessons learned during the banking failures, and not because an insurance company default is expected.

Director of financial regulation and taxation at the ABI, Peter Vipond says: "The insurance industry is financially strong and stable, so this legislation isn't immediately necessary.

"However, we understand its aim of providing consumers with continuity in the tax treatment of their saving and investments if they have to make a claim via the FSCS.

"We will work with HMRC to ensure that the regulation achieves it aims."