Norwich Union sets precedent with pay-out

One of the largest insurance companies in the UK recently announced that it will be returning a large share of its profits from the last two months to its policy holders. The company announced a one-off windfall of £2.1 billion and expects to transfer at least half of those funds into two with-profit funds.

The amount each policy holder will receive as a pay-out depends on the size of their investment and the amount of time they have been with the company. One estimate predicts that policy holders will see an increase of about 10 per cent in individual assets by 2010. As an example, a policyholder who has invested £30,000 in a seven-year-old bond is likely to collect a payout of around £4,500.

 

According to regulations set out by the Financial Services Authority, insurers in Britain are able to use excess capital in order to cover mis-sold claims or to subsidise new business. A recent movement in the industry has put increasing pressure on insurance companies to return those profits to their policy holders.

According to Norwich Union Life’s chief executive, Mark Hodges, “I think this is great news for policyholders.”

Policy holders with investments in force on January 1st, 2008 who continue to hold the investment for the next two years will qualify for a full payout.

Norwich Union is setting a precedent in the insurance industry with this payout, being the first company in the country to distribute profits to policyholders in this manner. Experts in the industry hope that Norwich is setting an example for other companies such as Prudential and Standard Life, companies who hold surplus estimated to be around £16 billion.

Yasmin Purnell Editorial

27/03/2008