With profits under the spotlight: Steering through the FCA thematic review under the wider future of the life insurance and pension sector.
12 September 2018
PwC explores the transformational trends reshaping the UK life and pensions sector and sets out a practical roadmap to help tackle the challenges ahead. The Financial Conduct Authority’s (FCA) fair treatment of with-profits customer review highlights many of these pressing issues.
With Profits Thematic Review
This isn’t the first time that with profits has come under the spotlight – the Financial Services Authority’s 2010 review highlighted particular concerns over policyholder communications and levels of independent challenge. In addition to checking whether these perceived shortcomings have been addressed, the FCA review is to understand the practices and issues arising from managing with profits funds.
While the broad scope of the review is clear, many businesses are uncertain about exactly what the FCA expects. While they may have participated in the initial information gathering in 2017, this year deeper dive has been confined to a small selection of firms.
Key questions for your organisation
Our work with organisations across the market has given us a good indication of what is at the centre of the FCA’s radar and where businesses may be at particular risk. There is a focus on capital management to consider the balance between security and fair distribution of surplus funds. Drawing on this analysis further, we believe there are five key questions that your organisation will need to address:
1/ Governance: How can you demonstrate that there is sufficient debate and appropriate challenge over with profits decisions?
2/ Value for money: Are you comfortable that fees are justified, investment strategies are in policyholders’ best interests and both are in line with their expectations? If not, how could this be improved?
3/ Risk and reward: How do the different levers for managing funds (e.g. estate distributions and guarantee charges) ensure the risk is appropriately shared between different generations of policyholders, and current policyholders and shareholders?
4/ Run off rigour: How do you monitor the appropriateness of your run off plans, set triggers for when to reassess them and ensure policyholders receive sufficient communication to make informed decisions?
5/ Communication: System and data limitations drive approximations. How do these limitations ensure policyholders get the right information and outcomes?
Having a positive response to the above is an opportunity to strengthen customer loyalty and trust whilst putting your business on a more competitive footing. More thinking on this can be found in the following link: sharpening operational efficiency, offering more flexible policy options and delivering improved outcomes for policyholders.
If you would like to discuss any aspect of the future of your with-profits business please get in touch.
More generally, in our future blogs we will be exploring further developments in areas ranging from growth opportunities to financial inclusion and operational transformation in the sector.