Most life offices have been making considerable efforts throughout 2010 to implement the FSA requirement that providers use different, essentially reduced, growth rates for certain asset classes, for example, property and cash. This follows the “Dear CEO” letter issued by the regulator on June 23, 2003.
To be fair, a small number of companies such as Standard Life and LV= addressed this issue when it first arose a few years back.
Most advisers will probably not have noticed any major differences so far but this will change in the next couple of months as the major quotation portals – The Exchange and AssureWeb, for instance – amend their services to address the issue. Meanwhile, many in the industry fear a return to some of the poor practices of the late 1980s, when high projected growth rates became a competitive issue.
A couple of weeks ago, I had the opportunity to examine the test version of new services from The Exchange for bonds and pension comparison quotes. I was impressed.
Up until now, bonds and pensions comparison services on The Exchange have been primarily an assessment of the projected fund values using standard industry assumptions. Advisers find these very useful for compliance purposes but, in my experience, they have had a limited role in defining who will actually get the business. Such decisions are now more likely to be based on the output of a product feature comparison.
Rather than using the projected rates as the primary measure – although they are included – The Exchange will take these changes as an opportunity to include a reduction in yield comparison for these product classes.
In preparing quotes, the service can utilise the adviser reference (also known as the intermediary case number) if this is input at quote stage. This can be carried through from quotes to new business and into the tracking system.
This could be a major step forward for advisers in achieving full straight-through processing as it will help establish other electronic services for the client
Where The Exchange is integrated with the adviser’s client management system, if this is generated by the CMS it can be pre-populated into the process.
This could be a major step forward for advisers in achieving full straight-through processing as it will help establish other electronic services for the client, such as the contract enquiry valuation for ongoing service as the last tracking message includes both the adviser reference and the provider contract or policy number.
It is important that CMSs embrace this ability and see it as a simple measure for firms to be able to gauge if their CMS supplier is keeping up to speed with the latest developments.
While the current service shows the net yield on each contract reviewed, at the moment it shows neither the mid projection rate being used by the provider nor the reduction in yield on the contract. At the time of my testing, not all insurers are showing the mid rate or the RIY. This should really be addressed by those companies – and they know who they are – as a matter of urgency.
As part of the work to introduce the ability for providers to quote using lower growth assumptions in respect of certain asset classes, The Exchange has taken the opportunity to review these quote services so they will now deliver additional content for comparison.
The bond service previously delivered the low and high rate projection figures. These have now been replaced by the RIY, the mid projection rate and the percentage used for these mid rates. Historically, services showed the mid FSA rates being used in the assumption.
The service has now been adapted so that comparisons can use the growth rate a provider selects for a particular asset class.
The service does not currently allow the adviser to pre-configure which funds they want to use for comparison. I would like to see this added, together with the ability for the adviser to set default funds for each.
Given all the effort put into this area, only one in 11 providers illustrated are showing rates other than 6 per cent at this time for cash funds – but admittedly I was only using the test service.
Using consistent rates is a much better approach and it would have been better if the FSA had left this issue, on which it has clearly not thought through the law of unintended consequences, well alone.
That said, the move to RIY comparison tables should be welcomed and when this service goes live I am sure it will have a far greater impact on provider selection.
I know The Exchange would like to turn on the RIY quotes for advisers in early December and is keen to ensure that as many providers as possible are live on the service.
However, a number of insurers are dragging their feet and when the service goes live, IFAs will be able to see who those companies are as they will appear at the bottom of any comparison table.
I will refrain from naming the guilty parties here but if this service, which will clearly bring major benefits to advisers, is seriously delayed I may return to the subject.
I have yet to see the equivalent offering from AssureWeb but hope to be able to write about it soon – perhaps that would be a perfect chance to revisit the question of which insurers’ services have gone live.