There are many hundreds of Life Insurance companies around the world. Whilst this article is tailored to the UK market, many of the principles apply elsewhere. However if you are outside the UK, you should be aware that the regulation of Insurance Companies will be different.
Many of the comments in this article also apply when choosing a Financial Adviser. The actual rules outside the UK will differ, so check out the relevant regulations in your home country.
Where is the Insurance company based?
Insurance company based in UK
Most of the insurance companies that advertise in the UK on television, newspapers, magazines or by sending you direct mail will be based in the UK. These UK based companies should be regulated and authorised by the Financial Services Authority (FSA). You can always check the FSA register to make sure that the company is regulated in the UK (http://www.fsa.gov.uk/fsaregister/search/financial_firm).
The FSA register will also detail (in technical language) what the firm is permitted to do and give details of any public actions that have been taken against it.
A UK based Life insurance company will automatically be a member of the Financial Services Compensation Scheme so that in the unlikely event of it failing, any outstanding claims will be paid.
Insurance company based outside the UK
Some insurance companies based outside the UK may be allowed to sell Life Insurance to the UK market. The FSA register will have a record of those companies that are allowed to sell directly to the UK market.
The regulations in the EU require that companies are regulated in the country they are based and there is some form of investor protection. However the rules differ in each country, so it is advised that you check the relevant country’s regulatory framework.
Note: – Insurance companies based in Guernsey, Jersey and the Isle of Man are subject to similar regulation as those based in the UK.
How do I know that the insurance company is financially stable?
This is the most difficult for the average person to assess. However, each year the FSA require all insurance companies completed very detailed returns that give an exact picture of the financial status of the company. Therefore if the company is regulated by the FSA and is still offering insurance policies, it can be reasonably assumed that it is financially stable.
How do I know if I will be treated fairly by an insurance company?
All UK insurance companies are required to treat customers fairly. However how this is achieved in practice differs between companies. The best way of finding a good company is by word of mouth. Ask friends or relatives if they have dealt with a company that you are thinking of using and get their assessment of it.
What role can a Financial Adviser play in choosing a good reliable company?
If you are using an Independent Financial Adviser, part of the regulatory requirements is that they only recommend suitable insurance policies and companies. They will have done all the checking of the company before recommending a product. In the unlikely event of something going wrong, then you may have reason to complain to the financial advisor for his or her failings.
In 2013, the FSA is being split into The Prudential Regulation Authority and The Financial Conduct Authority.
This article is for guidance only and must not be construed as advice. The contents of this article are aimed at the UK market, although many countries will have similar policies available. If you need advice you should refer to a Financial Adviser.