Pru among big insurers giving poor value

Insurance companies with the biggest market share often sell the worst value life and pension products to their clients, according to new research for the Independent.

Successful, and high-charging, life companies include Prudential and Royal Insurance, which recently merged with Sun Alliance, another expensive company.

Research carried out by John Chapman, a former official at the Office of Fair Trading, suggests that some companies win new business through employing large sales rather than by offering competitive products. The link between quality of products and success in the marketplace is an extremely loose one.

Companies which sell predominantly through independent financial advisers, including Standard Life and Norwich Union, are among the cheapest.

Only one among the cheapest companies, Equitable Life, which sells solely through its own salaried sales force, is also in the top rank on sales. Equitable, whose managing director is Roy Ranson, won pounds 437m of premium income last year.

A large slice of this comes through its dominance of the market for additional voluntary contribution schemes to company pensions, of which it has a 50 per cent slice.

Figures from Money Management, a specialist magazine, show that Prudential, whose chief executive is Peter Davis, grabbed pounds 446m of new annualised premium income in 1995, more than any other insurer.

Yet the company's charges are among the highest in the industry, according to a new measuring yardstick developed by Mr Chapman for the OFT. His system shows the Pru as having a below-average rating across its range of products.

The OFT-backed measurement follows new rules, introduced in 1995, that force the industry to disclose how much they charge on the products they sell.

His survey comes as the industry faces a new pressure for reform. The BBC's Panorama programme on Monday is set to show that company charging structures are still too opaque and people do not understand if they are being overcharged.

Mr Chapman's system examines how much is charged by a company if a person wants to surrender a product or transfer a pension in the early years. The same is done mid-way through a policy and at the end. Companies are allocated a rating from A to C, where C is below average and A is excellent. Prudential received a CCC-rating, meaning that the charges it levies are heavy throughout the life of its policies.

Separate figures collated by Money Marketing, another specialist magazine, show that someone taking out a with-profits pension with the Pru pays annual charges of 2.5 per cent of the value of a fund over 25 years. This rises to 4.6 per cent over 10 years.

Royal Insurance and Sun Alliance, now Royal & Sun Alliance, won more than pounds 150m in annualised premium income last year. On the same pension product, the companies charge between 2 and 2.5 per cent a year over 10 years and 4.1 to 4.8 per cent of a fund's value each year over 25 years.

About half of premium income was brought in by both companies' salesforces and tied agency operations.

Other companies which successfully attract large volumes of policyholders funds include "bancassurers" set up by high street banks. Barclays Life, which took pounds 89.8m last year, placing it in the top 20, narrowly pipped NatWest, Black Horse, Abbey National, Midland and TSB, all of whom still vacuumed up large amounts in premiums.

Details in the Money Pages, The Long Weekend