Axa row gets serious

By THIS IS MONEY
Updated:

 

The watchdog Consumers' Association today said it was taking insurance giant Axa to the High Court over claims it has wrongfully kept its hands on nearly £2bn of payments made by policyholders. The row centres on around £1.7bn worth of surplus assets that have been accumulated at Axa from premiums paid over many years.

In order to cover payouts to policyholders in the event of unexpected turmoil on world markets, insurance companies have traditionally put funds aside, known as an 'orphan estate', over the last 30 or 40 years.

Now Axa, with the backing of City watchdog the Financial Services Authority, plans to buy out these reserves from around 660,000 with-profits policyholders. It has offered them, the Consumers' Association claimed, payouts totalling £300m, or roughly £400 per policy initially, plus a total of about £225m from enhanced benefits to be paid later.

But furious customers deluged the CA with complaints that they were being ripped off and they deserved a far bigger slice of the cake.

The CA said that, under the Government's recommendations, 90% of such assets should be divided among policyholders, but Axa was trying to pay out only 30%.

Earlier this month the CA urged Axa to pay its legal costs so the consumers' watchdog can challenge Axa's decision in the High Court.

But after not having its request met, it emerged today that the CA is to seek a 'pre-emptive costs order' at the High Court to try to secure funding from the insurance giant for the matter to be legally resolved. CA spokesman Mick McAteer said: 'We have to apply for a pre-emptive costs order because we do not have the money that Axa does. The company is trying to get its hands on the money for its balance sheet and to pay to its shareholders in dividends.

'We feel it should be used to increase terms to policyholders, for example those whose endowments have not been performing well. The money should be used to pay off mortgages rather than line shareholders' pockets.'

The CA said it was bringing the action on behalf of more than 500 disgruntled Axa policyholders. Ashley Holmes, head of legal affairs at CA, said: 'We have been inundated with thousands of letters of concern over Axa's plan to distribute its orphan estate. The fact that 500 have asked us to represent them in court is symbolic of the extent of policyholders' concern on this issue.'

Following the preliminary battle over costs, Axa's request to the High Court for backing of its plans will be heard on November 20.

Axa's spokesman Phil Hickley said his company 'was not minded' to fund the CA's High Court challenge and denied customers were being 'ripped off'. He said Axa had already paid for an independent actuary to scrutinise its proposals, which were subsequently passed.

He said nearly 500,000 policyholders had indicated support for Axa's plans. Furthermore, the majority of the £1.7bn surplus could not be paid out to anyone - shareholders included - since they had to be kept in reserve to meet future unexpected commitments to customers.

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