Closed books of life insurance business, i.e. policies that are no longer being sold but into which policyholders are still paying, are once again the centre of regulatory attention in the United Kingdom.

The Financial Conduct Authority has published its latest findings about such policies after a 'thematic review' that it conducted to see whether insurance carriers were 'treating customers fairly.' It was especially keen to see whether firms were dealing with closed-book customers as favourably as they were with customers whose policies were still on the market. It has also published its own opinions, for what they are worth, about what it believes to constitute 'good and bad practice' in the area. As these opinions have nothing like the status of rules, it is difficult to gauge their worth if the FCA were ever to have to give the Upper Tribunal its reasons for punishing any firm for not taking them to heart. It refers to them by the maundering term of "draft non-Handbook guidance."

The review concentrated on investment-based life insurance products sold before 2000. The regulators visited and analysed information from a sample of 11 firms with  approximately £153 billion held in closed-book products on behalf of 9.4 million customers. It stressed that strict compliance with the terms and conditions of policyholders' contracts only, without considering their wider interests, might not necessarily be fair.

The FCA found that although many customers did not incur fees when abandoning their policies or converting them to 'paid up' status, the insurers often failed to tell those that did about the charges they would incur. In a small number of cases these charges were bad for customers - for example, when the paid-up charge consistently outweighed any fund growth. In its report it berates many firms for sticking to the terms and conditions of contracts to the exclusion of the customers' best interests. It adds: "Generally, boards and senior management do not have a grasp of closed-book customers and outcomes. They may rely on management information that is not giving them a rounded and comprehensive picture. For example, in some cases boards and senior management use complaints data to measure whether they are delivering fair consumer outcomes, but most closed-book customers are disengaged so they rarely complain and can be unaware of issues with their products."

Firms that had strategies for closed-book customer-care were best at servicing such customers. Some firms, though, were not communicating with some customers at all throughout the lifetime of some products, and the FCA found fault with this. Generally speaking, firms do not review their closed-book products. These, according to the survey, found it impossible to show the regulators that they had "fully effective processes for ensuring closed-book products remain capable of delivering against the reasonable expectations of customers" - an ambiguous phrase.

In a none-too-articulate way, the FCA expressed concerned that firms were sending out annual messages to customers that were of poor quality, i.e. that did not tell the customers, in accessible terms, how their policies were performing and what 'impact' the charges they were paying was having (although the FCA did not say on what) or what 'level' the charges occupied (an unexplained and, indeed, inexplicable phrase). It was, however, unambiguous in saying that most firms were failing to give closed-book customers important information at key events. They were not, for example, tellling them what charges they were paying for converting policies to paid-up status or for surrendering them, nor were they telling them that they were losing important benefits such as guarantees or informing them of the effect of this on future policy values. Some firms were relying on point-of-sale disclosure and/or policy terms and conditions, which were often sent out to customers years before the important events in question. In short, the FCA formed the impression that firms were not staying in touch with their closed-book customers adequately. At one point it accused some firms of not using phone numbers that they have on their files when attempting to trace customers, which is tantamount to an accusation that they are trying hard not to 'find' their closed-book customers.

Most products the FCA looked at did not incur exit or paid-up charges or, if they did, they charged less than 5% of policy values. The FCA seemed fairly pleased with this, although it found plenty to find fault with as well.

It also found that firms were generally poor at monitoring the extent to which unit-linked business was generating expense profits or losses and how this compared with their original assumptions. It added: "They also often do not actively link actual experience to the charges being incurred by the customer to ensure they remain fair. Some firms presume that applying contractual terms and conditions will ensure fairness to their closed-book customers, and there is no benchmarking of charges on unit-linked business."

With the subject of many a sentence veering from the general to the particular or vice versa, this report is likely to be hard for the average reader to penetrate. Sentences such as 'we are being predictable from the rules' and 'funds are poorly performing' are hardly likely to endear the regulator to anyone whose native language is English. At the end, the FCA says that the opinions of its employees are "potentially relevant to an enforcement case," an extraordinary reading of the Financial Services and Markets Act that it does nothing in those pages to substantiate. It also asks firms to write in and make their own suggestions about the opinions that its staff might like to form - whether any firm does so or not remains to be seen.