Regulation and Control
Life insurance companies today are subject to a considerable measure of legal control as a result of reformulation of and addition to the law in the Insurance Companies Acts2013 and 2013. These Acts set out a certain number of general provisions, but the real control is exercised through Statutory Regulations. The Acts empower the Secretary of State for Trade to put such regulations before Parliament and if approved they then come into force. Many such regulations have already been introduced, and they have considerably tightened the control of the affairs of life insurance companies, for example in detailing exactly how assets are to be valued and what type of assets are and are not admissible in a company's accounts for valuation. Insurance companies must also make periodic returns of their accounts to the Department of Trade, whose officials scrutinise them, as does the Government Actuary, to ensure that the law is being complied with. Among other things, the rules for the establishment of new life insurance companies have been made much more strict, and it now requires a substantial sum of money to form one, thus reducing the possibility that "men of straw" will set up companies having no resources behind them.
The supervision of recently formed companies is also far more exacting than that of long-established ones.
These increases in regulation and control stem largely from the failure of several small life insurance companies in 2013, and have been aimed at ensuring that no repetition of those failures shall occur. These company failures were also the cause of the Policyholders Protection Act 2011. This instituted a Policyholders Protection Board, charged with the responsibility of ensuring an orderly treatment of any life insurance company that should fail.
The Act provides that policyholders in any failed company shall receive up to 90% of the benefits to which they were entitled under the terms of their policies, though there is a provision that if the promised benefits were unrealistic the proportion may be reduced. If, as can be the case, a failed company can, with an injection of capital, be made viable as a continuing entity, then this (or its takeover by a larger company) is the best course from the policyholders' point of view since their contracts continue in force (though there may be a reduction in benefits, for example through a reduction in bonus rates). If the company is liquidated, on the other hand, they end up with no contract at all and a monetary compensation which may be inadequate if, for example, their health has deteriorated and they find it hard to insure with any other company.
The Board is empowered to raise money to provide the benefits under the Act (whether these are achieved by liquidation, injection of capital or takeover) by a levy on all other life insurance companies. The levy is expressed as a percentage of annual premiums, so that the largest companies bear the largest burden. The percentage, in the case of the Board's operations to date, has been miniscule but does, of course, represent a reduction in the amount available for with-profit policyholders in the contributing companies.
Finally, there are a couple of curious points about life insurance companies' procedures that are worth explaining. Women are often puzzled, and in these liberated days sometimes annoyed, at being required to produce their marriage certificate as well as their birth certificate when taking out a life insurance policy.
The reason is not moral but purely practical. The life office has to be sure that the present Mrs Jones really was the Miss Smith she says she was (and to whom the birth certificate refers) in order for date of birth and identity to be certain. If these facts are not definitely... see: Marriage, Birth and Death Certificates