There has been much gnashing of teeth over the last few weeks about the future of Prudential, along the lines it is essentially dumping its British heritage as it seeks to be a truly global player – but does it matter?
It matters if you are a shareholder and you are being asked to stump up in the rights issue to buy AIA in Asia and this has brought Neptune’s Robin Geffen out to battle on the issue – and he is not a man to upset at the best of times.
The rights issue and the price it will pay for the deal is one thing, but the broader issue is about the loss of another British institution and effectively the demise of The Man from the Pru.
Of course The Man went years ago – actually over 20 years ago – along with a lot of those other old industrial branches of door-to-door insurance salesmen that seemed to be the bedrock of the industry.
I remember Trevor Roper from the Pearl knocking once a month to collect his premiums and if he timed it wrong and arrived just as my Dad was sitting down to have his tea, he was sent away with a flea in his ear by my Mum and forced to walk around the whole estate to kill time before he came back.
It seems quaint now, but it meant there was a personal link – Trevor Roper – between our family and the company providing security against my parents’ early death.
It all started to go wrong for life companies in general because they started to change the products they offered as they tried to grow market share in the face of what they saw as growing competition.
You might say many of these products were like giant Ponzi schemes – they relied on new policyholders coming on board alongside a rising stock market to pay out the original policyholders.
Basic with-profits endowments generally worked out fine and certainly did not let my parents down when it came to paying off their mortgage. But, when the low-cost versions began to take hold, combined with other inventions such as guaranteed annuities and a whole raft of overly complex policies, the net result is the industry we have today.
Equitable Life is the most high-profile casualty, but many mergers and acquisitions over the last 20 years have been driven not by genuine benefits of scale but to stop more life companies going the Equitable way.
Prudential is not going the Equitable route, but it is struggling to work out what it means to us in the 21st century and how to fund all those liabilities it has underwritten over the last few hundred years.
There has been a lot of debate over the last few years about the future for financial advisers, but this surely pales into insignificance when you think about the future of the life companies in the UK.
Transparency, opaque charging, poor service and a lack of consumer trust – it is going to take more than turning Japanese (or to Asia) to solve these problems for the life industry.
Lawrence Gosling is the founding editor of Investment Week. His views are his own, any comments to him at lawrencegosling@sky.com
