View from City Road: Norwich pays for taking its eye off the ball

What is wrong with Norwich Union? One of Britain's largest insurance companies has had to suspend its life insurance sales people because regulators fear that too many of them are undertrained or otherwise incompetent. If Norwich Union cannot train its sales people properly, what else might be going wrong?

The answer, sadly, is plenty. Over the past few years Norwich Union, one of the best names in the business, has been dogged by problems.

Back in 1990, Norwich Union was one of the first insurers found to have inadequate control over its tied agents. Going into the recession, it found itself with a property portfolio described yesterday by its chief investment manager as 'absurdly overweight'.

Solvency rapidly became a serious concern, a problem compounded by the company's foolishly large sales of with-profits bonds - contracts that impose a substantial financial strain. Norwich Union was forced to abandon a market that it had dominated and to switch an enormous amount of money into government securities. On top of this, it was attracting criticism for poor administration and sharing in the industry's huge losses on general insurance.

Although general insurance is back in profit, this is not an impressive record for Allan Bridgewater, chief executive since 1989. With Lautro, the life insurance regulator, still monitoring the situation closely, it is probably not the end of Norwich Union's embarrassments. It is difficult to see why, in a close call, any independent financial adviser would recommend Norwich Union ahead of peer companies such as Standard Life and Scottish Amicable.

The honourable men at the top of the life insurance industry have been caught out repeatedly by underestimating the harsher environment, both regulatory and commercial, of the 1990s. They have been slow to recognise the need for higher standards and to take account of the changing requirements of customers.

Little wonder, then, that there is little confidence in the industry's ability to put its house in order. The beleaguered Personal Investment Authority, the proposed investor protection agency, is headed by Joe Palmer - another insurance man whose former company (Legal & General) has found itself in trouble with the regulators.

As a mutual, the external disciplines on Norwich Union are weak, though this is not an explanation for its problems; some of the best insurers, such as Standard Life, are also mutuals.

The best practical hope for Norwich Union is Philip Scott. Fresh from tackling the solvency problems, he has taken control of the UK life operations. Norwich Union must hope he gets it right. It cannot afford many more mistakes.

Mr Bridgewater, by the way, is chairman of the Association of British Insurers, and Mr Palmer was chairman from 1989-91. Mr Bridgewater's immediate predecessor, Ian Rushton, found himself shunted rapidly sideways at Royal Insurance as his company crashed to enormous losses. The chairmanship is beginning to look something of a poison chalice, and perhaps a sell sign where public companies are involved.