UK residents could be shielded from life company bankruptcy
Advisers trying to sell offshore services to UK residents may have received a huge boost after it was discovered that any European or Crown Dependency insurance product sold to a UK resident might be protected by the UK's Financial Service Compensation Scheme (FSCS).
A major concern intermediaries have had about offshore bonds and using European Economic Area (EAA)-based insurers is that their clients would not be protected in the case of a bankruptcy. This development would take away that doubt and provide a psychological boost aiding the sale of cross-border policies.
While there are still doubts about the details of this development - every offshore life group has legal teams taking apart the FSA handbook - the company that have made the claim, Scottish Equitable International (SEI), is in no doubt at all.
According to SEI, the FSCS covers UK residential policyholders, for policies issued in the EAA and Crown UK Dependencies after 1 December 2001. The scheme would be triggered if an insurer was unable to meet claims against it, and the level of compensation that the FSCS will pay is unlimited, the amount calculated as 100% of the first £2,000 and 90% of the remainder of the claim.
Steven Whalley, marketing manager for SEI, said: "This is a significant development for intermediaries considering recommending offshore insurance bonds, as it removes one of the frequently raised concerns about the offshore market. Our investigation shows that it does apply to UK residents for policies issued after 1 December 2004."
SEI has said there will be no advantage or disadvantage between the four main offshore jurisdictions of Isle of Man, Dublin, Guernsey and Luxembourg selling offshore bonds into the UK.
However, International Investment has since discovered the situation is not so clear- cut. Many offshore life companies are still confused as to whether or not UK residents are really protected.
At the time of going to press, many firms were still in talks with their legal teams and the FSCS on the specifics. Most companies International Investment approached were unprepared to comment as they were still waiting clarification.
A spokesperson from the FSCS told International Investment the situation remained unclear as the rules were so complex. An update will be sent to readers of the mid-month news bulletin (www.intinv.com to sign up) and then be published on the website..
If Scottish Equitable International is right, offshore bonds sold to UK residents from insurers in the EEA and Channel Islands will be covered by the UK's compensation scheme.
Could open up selling opportunities for intermediaries previously held back by investor worries over lack of protection. This could also provide a strong psychological comfort factor.
However, rules relating to protection are extremely complex - even the UK regulators are not yet sure who is covered.
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