Compensation for Policy Holders of Insolvent Life Insurance Company
Equitable Life came very close to insolvency following a Court decision in 2000 which confirmed that they had to meet a liability of over £1.5 billion to one group of their members (who had 'GAR' policies).
The money was found by reducing the value of policies held by everybody else who had different investments in Equitable Life (known as non-GAR policies).
Many of the non-GAR policyholders complained that had they be told at the point they were sold an Equitable Life product that this might happen, they would not have invested their money with them at all.
In an effort to compensate those Non-GAR investors who remained with Equitable Life and stay in business, the Society obtained Court approval to an insolvency arrangement, paying back a sum equivalent to a small percentage of the policy values.
However tens of thousands of non-GAR policyholders had cashed in their policies when it looked liked the Society would go under. They were offered no compensation at all, despite the fact that the money they received was substantially reduced.
Initially we wanted to gauge the interest of the non-GAR policyholders in obtaining legal advice and independent information. We set up a telephone helpline and dedicated e-mail service and were inundated with requests for help.
We quickly set up a Focus Group made up a small number of those who had registered with us to help us decide how best to approach the problem. We offered a fixed free individual case review for those who wanted early advice on the merits of the claim, and a free registration service for those who simply wanted general help and guidance.
We contacted other firms who represented smaller numbers of individuals in order to ensure consistency and enable us to properly co-ordinate an approach to Equitable Life's solicitors.
The first step was to protect the claimants' position with regard to the legal time-limits. We were able to agree a 'Standstill Agreement' with Equitable Life. This meant that while negotiations were taking place claimants were not forced to incur the risk and expense of issuing court proceedings.
Because we represented a large group of claimants we had a powerful voice in the negotiations which followed, although the group were not the only party with a direct interest. The Financial Services Authority, who regulate the industry, had a stake in the outcome, as did the Financial Ombudsman Service and a number of claimant action groups. The Equitable Life story was of great interest to the media and we had to manage that carefully on behalf of the claimants, shielding individuals from direct press intrusion while ensuring their claims were properly represented.
We were able to negotiate a priority 'case by case' review of the groups' claims having first set out a formula to establish the strength of the claims and how the compensation was calculated, with an emphasis on simplicity and speed. The review process was extended to include all those potentially affected.
With reference to our advice individual members of the Group could accept or reject the individual offer made to them, enabling them to consider their own circumstances, without their decision affecting the compensation payable to other members in any way. In fact 96% of the claimants in the group accepted the compensation payable. In many cases they received their cheques within 48 hours of their acceptance of their offer.