Zurich Assurance Ltd · DRN-6250727

The complaint Mr S and Mrs S as trustees of the S Trust complain about the way Zurich Assurance Ltd reviewed their policy and asked for increased premiums. What happened The policy was incepted in 1983 – initially for a sum assured of £150,000 and a premium of £84.76 per month, later increased to £88.11 due to an endorsement on the policy. The purpose of the policy was to pay a likely inheritance tax liability on death. The policy was subject to regular reviews – the purpose of these reviews was to ensure that the premium remained on track to continue to provide the life cover for life. Reviews were carried out over time: • In 1993 the policy was reviewed for the first time and as it was “better than expected”, the life cover was increased to £224,615; • In 2003 the review was “not as expected” and rather than increase the premium, the sum assured was reduced to £192,844. • By 2020, the life cover had increased, due to “better than expected” reviews and was now worth £224,615. In 2020 and 2021, following “not as expected” reviews, the trustees decided to increase the premium from £88.11 to £154.22 and then £232.54 in order to keep the same sum assured. The reviews in 2022 and 2023 were also “not as expected”, but the trustees opted to reduce the sum assured, rather than increase the premium, down to £201,002. The trustees complained about Zurich’s reviews. In summary, they thought Zurich had made mistakes in its calculations and they were unhappy at the generic responses they received from Zurich when they asked for more information. One of our investigators looked into the complaint and thought it should be upheld. In summary, he thought that the review letters issued by Zurich did not contain sufficient information be fair, clear and not misleading, and this meant that the trustees were unable to make informed decisions – especially at the point the premium was no longer enough to meet the policy’s charges. He concluded that the trustees wouldn’t have agreed to increase the sum assured from that point on if they had known that there was a strong likelihood of their premiums increasing later on in life. He therefore asked Zurich to reconstruct the policy as if the sum assured increases in 2013 and later never took place. Zurich didn’t agree with the investigator. It said that it “strongly” refuted the investigator’s conclusions that its communications didn’t meet the relevant standards, nor that there was an imbalance of knowledge between it and the trustees. It also didn’t agree that it would’ve

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been aware, in 2011, that the premiums would not support the life cover. It said that the investigator had focused too much on the charges on the policy exceeding the premiums, but it said that this was “to be expected […] at some point in the plan’s life with the excess cost being support from the return on the fund if experience is in line with the assumptions made”. It confirmed that the reviews were designed to establish whether the premium was going to be sufficient to meet the cost of the current level of cover of the whole lifetime of the plan. It set out some details about the policy was intended to work and concluded by saying that there was “no reason to inform the customer that the cost of cover now exceeded the premium as this was simply an expected stage of the plan’s life”. As an agreement couldn’t be reached, the case was passed to me to decide. I issued a provisional decision because I didn’t think the investigator’s conclusions were fair and reasonable. In that decision I said: “I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I’ve come to a different conclusion. I’m sorry to disappoint the trustees, but I have insufficient evidence to conclude they would’ve done anything differently. The investigator set out in a lot of detail the relevant standards that applied to the communications Zurich was sending out. Whilst I’ve noted Zurich’s comments, I’m not persuaded by them. Although it says “there was no reason” to let the trustees know about the cost of cover exceeding the premium, I’m not persuaded it has explained why. My starting point is that both the high-level principles and the guidance issued by regulator show that paying due regard to their information needs ought to have included “clearly explained details regarding the performance of the product, its value and the impact of fees and charges”. I’m not persuaded that can be achieved without any information about the product’s charges. And the trustees were never told, at any point, how much the policy was costing. They weren’t told this in the review letters and they weren’t even told this in their annual statements – which simply set out the monthly premium, the fund’s value and the amount of life cover. As for the issue of the premiums not being enough to meet the costs of cover, I’m also not persuaded that this was an insignificant moment in the policy. I accept and acknowledge that it was always intended that the fund would, at some point during the lifetime of the policy, be used to supplement the shortfall between premium and costs of cover. I don’t think the investigator has at any point suggested that wasn’t a key feature of the policy. In fact, it’s precisely because this was a key feature of the policy, that when this point came it ought to have been highlighted or otherwise made clear to the consumer. If Zurich had been setting out the key monetary impact of the charges on the policy as a matter of course, then it would’ve been apparent to the trustees – they would’ve been able to see for themselves how the costs were increasing and, importantly, how much the shortfall was. In turn, they would’ve been able to decide for themselves whether the risk of future premium increases, in light of the size of the fund and their own assessment of how long

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they’d want the plan to last for, was a risk they wanted to mitigate or were otherwise prepared to accept. Zurich has not explained how the trustees could’ve made these decisions without any monetary information about the costs and charges on the policy. I acknowledge that the review booklets contain generic information about Zurich’s reviews and the plan. I’m not dismissing that information and I do consider it relevant. But it is not the same as providing actual information about the performance of the policy to consumers – and without that information, they would’ve had no way of knowing how sustainable their plan was going to be. Given the long-term nature of these policies, the likelihood of changing circumstances in consumer’s lives and the real risk of the policy becoming more expensive in later years, in my view Zurich’s failure to provide this information to the trustees meant that its communications to them were not in line with the relevant standards. However, this does not automatically mean that I must uphold the trustees’ complaint. I need to consider whether more information would’ve made a difference to what the trustees would’ve chosen to do at the time and, importantly, whether that information would’ve made a difference to the position the policy finds itself in today. Pausing here – I do need to be clear; the fact that I conclude below that no compensation is payable does not mean that the information I’ve said above ought to have been disclosed didn’t need to be. I’m deciding the matter, many years later, on the balance of probabilities. The reason I don’t agree with the investigator is because the trustees are, essentially, in the same place they would’ve been – except that they have benefited from potentially higher levels of cover, since the tipping point, than might otherwise have been the case. The policy has built up a substantial fund – and they are able to reduce the life cover, if they want to, in order to avoid having to increase the premium. I understand this is what they opted to do in the last two reviews. In 2010, even if they had known about the costs of cover, they also would’ve known that Zurich was reviewing their policy for life. They would’ve known that it thought the policy remained sustainable on those terms – because even if Zurich gave the trustees more information, its assessment of the policy at the time would’ve been the same. And as it has shown, the costs of cover didn’t exceed the premiums for long. Due to the way it reviewed the policy, it required changes to the policy that did, in fact, make the policy more sustainable. Furthermore, the additional information that Zurich ought to have provided would’ve shown that the units being sold from the fund to cover the additional costs were being more than met by the fund’s growth, which exceeded the growth in the life cover charges. So I’m not persuaded I have enough evidence to conclude that, without being required to by Zurich, the trustees would’ve opted against a higher level of life cover when told they could have that for the same premium. Especially when I can see that the increase from £192,844 to £220,535 only increased the life cover costs by around £400. It's also relevant that Zurich has remained on risk throughout the entire period. This means that if a claim had been made, Zurich would’ve paid out the higher amount. So for me to ask Zurich to reconstruct the policy, I need to make sure that on the balance of probabilities, that’s what would probably have happened – and in the particular circumstances of this case, I’m not persuaded I can make that finding.” Zurich agreed with my provisional decision and didn’t have anything further to add.

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Mr and Mrs S didn’t agree. They explained that they had never intended to reduce their cover, but did so after being told by Zurich that increasing would have tax implications – although that seems to have changed as they’ve not been told this in recent reviews. Mr and Mrs S explained that the policy was there to pay IHT and they would therefore always have paid any amount demanded because the amount estimated to be required when they took the policy out was less than the liability which will be incurred. They said they would increase the cover now, if they could, and if the rate was reasonable. They also said that they didn’t understand why they hadn’t been asked to pay higher premiums in earlier days, rather than “piling on increases now”. They said that recently Zurich had behaved reasonably, but they were worried this was only because of this service’s involvement – and they’d be defenceless in future if Zurich chose to “massively increase the premiums”. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I see no reason to change my provisional findings and I confirm them here as final. I acknowledge what Mr and Mrs S have explained about their recent decisions to reduce the life cover and the reasons why. I also acknowledge what they’ve said about the life cover and its purpose – and this confirms in my view that they would have always considered increasing their life cover, where possible. So my overall assessment of what would’ve happened had Mr and Mrs S had more information from Zurich remains the same – I’m not persuaded anything would’ve been different. Ultimately, Zurich would’ve continued reviewing the policy as it did – and as I said in my provisional decision, that did make the policy more sustainable even after the tipping point. Mr and Mrs S have asked why they weren’t asked to pay more – but this is because Zurich were reviewing their policy based on assumptions about the future, as well as taking into account previous assumptions which may not have been borne out. Furthermore, it was important that Zurich, in reviewing the policy and deciding what premiums were required, didn’t ask for more premiums than it actually thought was necessary to keep the policy in place. I understand the tax implications of now increasing their premiums that Mr and Mrs S have mentioned – but these would always have limited future increases in the premium that would’ve been available and there isn’t anything which Mr and Mrs S or Zurich could’ve done to avoid that happening. I note that Mr and Mrs S have explained that recently they’ve considered Zurich has acted reasonably – and I hope they feel their complaint has been looked into and decided impartially. My final decision My final decision is that I don’t uphold their complaint.

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Under the rules of the Financial Ombudsman Service, I’m required to ask Mr S and Mrs S as trustees of the S Trust to accept or reject my decision before 25 April 2026. Alessandro Pulzone Ombudsman

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