Simon Read: 'Has Phoenix done it again on charging too much for its life policies?'

I reported in February that tens of thousands of people with a Scottish Provident insurance policy could be in line for a refund of thousands after the life company Phoenix, which had snapped up a number of Scottish Provident's funds, was forced to admit that it overcharged.

Now the adviser who spotted the original discrepancy has identified further potential overcharging. It's a fairly complicated as well as a worrying tale.

It relates to how the company works out charges for life policies. In simple terms, the longer you're likely to live, the cheaper your policy will be. But if you are considered a high risk, because of a heart problem, for instance, premiums will be much higher because the chance of the company paying out will be much higher.

One of the factors used to determine charges is whether you're a smoker. Non-smokers pay less because they should be less prone to health problems. But the adviser reckons that Phoenix may have failed to apply lower rates to non-smokers.

He tells me that when he applied for his policy with Scottish Provident in 2001, the product literature suggested that lower monthly charges would reflect being a non-smoker. It said: "The factors we use to calculate the cost of protection will reflect current rates of mortality and morbidity, age, sex and smoker status."

In the small print was a clause that allowed the company to validate his non-smoker status from time to time, although in his case, it has never done so. "So it appeared from the outset the company was committed to lower monthly charges for their non-smoker policyholders," he says.

However, his research revealed that later versions of the policy didn't include the validation clause. That suggested to him that non-smoker status was subsequently ignored and the lower cost for non-smokers was not taken into account by the company when routinely deducting monthly charges.

He analysed data provided by Phoenix on the policy rates, and compared them with tables published in 2000 by the Institute and Faculty of Actuaries (IFA), which are readily available online.

"The tables give mortality statistics for [male] smokers, non-smokers and a 'combined' table which doesn't take smoking into account at all," he explains. "The figures in the combined are closest to the level of charges made by Phoenix, which are typically 20 to 25 per cent higher than the non-smoker figures.

"As a further check, I compared my policy with another company, totally unconnected with Phoenix, and calculated that their non-smoker mortality rate was much lower than Phoenix's and similar to the IFA non-smoker tables. I cannot understand how Phoenix can justify the mortality charges being so high, especially when compared to the benchmark figures."

He raised the matter with the company, which told him that "rates specific to non-smokers have at all times been used for all of your policies". However, it later admitted: "In 2014 we began a review of mortality rates, across a range of products. We expect to complete this review in 2015."

When I approached Phoenix with the story, it said: "Mortality charges which are specific to non-smokers have at all times been used for all of his policies. All sufficiently large life insurers will charge premiums for their life cover that reflect their own company's experience of the risk. Phoenix reviews their rates from time to time to ensure that our charges continue to reflect our experience."

The retired adviser responded: "The explanation raises questions as to Phoenix's 'experience of the risk'. A higher mortality assumption is yet another way of extracting value from a policy to the policyholder's detriment, and Phoenix' benefit."

He reckons that the present-day loss in value to his policy is likely to be more than £6,000. He asks: "How many of Phoenix's 5 million customers are similarly affected?"

s.read@independent.co.uk

twitter: @simonnread