ACTUARIAL POST FOR THE MODERN ACTUARY MARCH 2020
NOTHING TO SEE HERE
AREAS OF CONCERN IN PENSIONS JUDGING FUND MANAGER PERFORMANCE A VISION FOR 2020
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Use your experience in cashflow and financial modelling to develop and implement de-risking solutions in this excellent role. You will assist with pricing and modelling, and support the reinsurance tender process.
Play a key role, conducting mortality experience investigations, manipulating scheme data, managing associated queries, and producing accurate cashflow projections for use in de-risking solutions for DB pension schemes.
In this fantastic in-house role, you will monitor pension risk and develop alternative funding and investment strategies, co-ordinating input from external advisers.
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There is currently extremely high demand for part-qualified actuaries across all areas of actuarial specialism. Opportunities exist both to further your career within your current sector and to make a move to another sector. Contact us now to discuss the wide range of options available.
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EDITOR’S NOTE As Storms Ciara and Dennis recede it seems that the water levels for a lot of people continue to rise as there seems no let up in the weather as the rains continue to fall. News that one storm alone has NFU Mutual with claims already estimated at over £20 million. With Storm Jorge next it seems claim levels may continue to rise. PwC’s Melanie Puri and Ewan Tweedie examine the Life Insurance protection gap and ask is auto enrolment the answer whilst Alasdair Gill gives us a Vision for 2020 as he looks at investing in 2020. Our regular columnists as usual give us plenty to think about with articles including Dale Critchley writing about nothing in Nothing to see here and Alex White asks what you do when your fund manager underperforms in his article entitled Judging Fund Manager Performance. I trust you will enjoy this month’s issue and we look forward to welcoming you back next month when we hope things may be slightly drier.
Jennifer Redwood
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CONTENTS 13
15
18
News
6
Movers & Shakers
8
City Dealings
9
Tait’s Modern Pensions
10
Pension Pillar
13
Inner Workings
14
Retirement Puzzle
16
Solvency II & Beyond
18
Information Exchange
20
Lights, Camera, Actuary
22
A Vision for 2020
24
22
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NEWS MARCH PLSA guidelines say hold firms to account on Climate Change Pension fund investors must be prepared to hold the directors of the companies in which they invest individually accountable on how well they manage climate change risks, the Pensions and Lifetime Savings Association (PLSA) has stated in its updated annual Stewardship Guide and
Voting Guidelines. The guidelines are an important resource for pension trustees, providing practical guidance for schemes considering how to exercise their vote at annual general meetings. The guide is especially relevant this year, following new regulations introduced
Government amendments to Pension Bill on Climate Change Risk The Pensions and Lifetime Savings Association (PLSA) comments on new Government amendments to the Pension Schemes Bill to impose requirements on pension schemes to manage climate change risk. Joe Dabrowski, Head of DB, LGPS and Standards at the PLSA, said “We fully support initiatives that help pension schemes with assessing climate change risks. Achieving common forms of disclosure throughout READ MORE
in October 2019 requiring trustees of all schemes understand and disclose how they include financially material ESG factors and undertake stewardship in their investment decisionmaking. The updated guidance is intended to be a practical, READ MORE
Value of a Will as new rules come into force
to have a will, we would always advocate that individuals should put a will in place. A will sets out how someone wants the ownership of their assets to pass when they die and as a result, it can help to make sure that adequate provision is made to
The Government has increased the amount that the surviving spouse can automatically inherit if their partner has children and dies without leaving a will. This is going up by £20,000 to £270,000 in England and Wales.
READ MORE
Below we highlight the value of a will and the value of a flexible trust when it comes to protection policies, in response to the changes to intestacy rules that come into force today Elaine Cruickshank, Tax and Trusts Manager at Aegon comments: “While this might sound like a financially attractive reason not
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NEWS Actuarial science applications soar on new post grad course A new postgraduate course, backed by industry and aimed at training the next generation of actuaries, has expanded in the past year in response to high demand from prospective students without mathematical qualifications. Barnett Waddingham has lauded the University of Strathclyde’s initiative in launching its Master of Science (MSc) programme in actuarial science, particularly for its industry collaboration and modernised approach to the syllabus. Unlike many actuarial science degrees, students can join the course without having already undertaken a mathematical degree, holding instead more ‘diverse’ qualifications in a broad range of other increasingly relevant subjects, including... READ MORE
Insurtech Trends
AXA Partners Marketing & Innovation Director, Kelly Ward, that might be of interest. Kelly touches on the success of Insurtech in recent years, the limitations for consumers, and the biggest trends for the next decade How successful has the investment in insurtech been in recent years? There have been significant steps forward, but there are still teething issues when it comes to finding workable business models. Organisations need to find the right balance between putting the customer first and building profitable solutions – if a customer thinks they need a product then it’s worth developing, but if it’s a case of thinking there’s a cool piece of kit that should be brought to the market and you
haven’t drilled down into customer perceptions, that’s where things can fall down. We don’t think hard enough to solve customers’ problems and that needs to change. Look at Greggs as an example – they saw an increase in demand for vegan products and made small tweaks to their existing range to limit cost while still meeting customers’ needs. They are thriving at a time when the high street is not, and it’s because they’ve got that balance right. Do barriers still exist for consumers when it comes to insurtech? In banking those barriers are breaking down. We’re seeing that customers are gravitating towards services and solutions with real practical... READ MORE
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FCA highlights its areas of concern in financial services The Financial Conduct Authority (FCA) has today published its annual Sector Views, an assessment of the risks and potential harm to consumers across financial services markets. The Sector Views look at the impact of macroeconomic developments and common drivers of change emerging across financial markets. They also outline areas where there may be a negative impact on consumers or the integrity of the financial system in that sector. The report sets out what factors are driving harm, as well as considering how the harm may develop over time. The kinds of harms the FCA is concerned about, include: Although the FCA has seen a number of... READ MORE
MOVERS & SHAKERS The latest moves and appointments from the actuarial marketplace PTL announce Actuary Dan Richards as Client Director
PPF appoints Julien Gigoi Lisa McCrory as becomes Lukos Chief Finance Chief Actuary Officer
Julien Gigoi becomes Luko’s Chief Actuary, tasked with building europe’s no1 online-only supplier of building insurance.
PTL has announced the appointment of Dan Richards as a Client Director in its London office. Richard Butcher, Managing Director at PTL, commented: “Dan is the second of the four new hires at Client Director level we announced we were looking for in November, and he joins us at a pivotal time. The demands on professional trustees are increasing, and PTL is committed to meeting these head on and raising governance standards across the industry. To meet our exacting standards and ambitious growth plans, we need talented, experienced, creative and energetic individuals, and someone of Dan’s calibre is a very welcome addition to the team.” Dan Richards, Client Director, added: “PTL has clear plans for the future, a fantastic team of people, and a brilliant reputation in the market. As pensions continue to make headlines in the news, and pressure from the regulator increases, it is great to be part of a team which is helping... READ MORE
Hymans Robertson promotes new head of DC investment
The Pension Protection Fund (PPF) has announced that Lisa McCrory has been appointed as its new Chief Finance Officer (CFO). Lisa will now be responsible for leading the PPF’s actuarial financial management, finance, commercial and internal audit departments and will do this alongside her current role as Chief Actuary. Oliver Morley, Chief Executive of the Pension Protection Fund commented: “It brings me great pleasure to officially welcome Lisa to our Executive Committee as our new Chief Finance Officer. Our priority is to serve our members and we... READ MORE
Hymans Robertson has promoted William Chan to lead its DC Investment consulting. William joined Hymans Robertson in 2015 after over 10 years as an investment consultant for
Julien Gigoi, who was most recently Chief Actuary at the direct-toconsumer insurance brand l’Olivier, the French counterpart of Admiral and the european leader in direct to-consumer insurance, will now lead the team at Luko. Julien will oversee all insurance and data activity at the young and rapidly growing company. His first priority will be to refine pricing and warranties to be the fairest and best available on the market. He will develop new services and implement strategies to ensure the Luko customer experience is second-to-none. According to cofounder and CEO Raphael Vullierme, Julien will bring his cutting-edge expertise in data analytics from the... READ MORE
JANA Investment Advisers and MLC Implemented Consulting in Australia. In his new role, he will lead Hymans Robertson on their DC investment proposition, portfolio construction and implementation for a broad range of DC clients and under
page 8
a diverse range of governance models. Over the past three years, William has led the DC Research area at Hymans Robertson where he has focused his time on researching DGFs,... READ MORE
CITY DEALINGS Keeping up to date on acquisitions, mergers and the dealings of companies in the city
L and G in GBP1bn de risking transaction with AIB Group Legal & General Group announces that it completed an innovative de-risking transaction for the AIB Group UK Pension Scheme, covering over 1,300 members, at the end of 2019. The transaction makes use of a new solution Legal & General has developed and further tailored for this scheme in partnership with advisors for the Trustee and its sponsor, Allied Irish Banks plc (the “Bank”), the transaction is split between a £850m pensioner buy-in and a £250m Assured Payment Policy (“APP”).
Norbert Bannon, Chariman of the Trustee, said: “This transaction is another major milestone in de-risking the Scheme. It is the result of a collaborative process between the Bank and Trustee over many years, always with the clear objective of improving the security of members’ benefits. This would not have been possible without the constructive input and advice of our advisors. The Trustee is appreciative of the cooperation and support it received from the Bank over the years.”
READ MORE
MNOPF SECURES GBP1.6BN BUY IN WITH PIC READ MORE
Huge lack of capacity in insurance sector for cryptoassets
NFU Mutual claims on Storm Ciara reach GBP20m
Evertas the cryptoasset insurance company, believes there is less than 0.5% of capacity in the world’s insurance market to cover the value of cryptoassets globally.
The UK’s leading insurer of the countryside and mutual insurer, NFU Mutual, has received more than 2,800 claims for Storm Ciara and currently estimates the total claims pay-outs to its customers to be in the region of £20million.
The company estimates the global insurance industry only has capacity of around $1 billion to insure crypto assets, and it says this lack of supply is driven by three factors: 4. The relatively small size of the crypto asset market today compared to other sectors 5. A lack of underwriting expertise 6. ‘Blanket’ mandates to not write insurance policies in the crypto space READ MORE
page 9
Approximately 90% are personal home insurance claims for significant storm damage including fallen trees damaging property, damage to roofs and tiles, water ingress and chimneys being blown over. There were 170 claims for vehicles and just over 150 claims for flood-related damage. The estimated costs are almost double that of Storm Doris which READ MORE
TAIT’S
MODERN
PENSIONS
Areas of Concern in Pensions When it comes to pensions, the Financial Conduct Authority’s (FCA’s) annual Sector Review raises the expected themes of unsuitable advice, scams and poor-value products. It’s not all about bad practice though, with a recognition of the impact of automatic enrolment and the increasing use of technology, both of which are undoubtedly forces for good but bring additional challenges. The AE Effect It’s well known in the industry that as a result of automatic enrolment (AE) more people are saving but they are not saving enough and the Sector Review considers that “the prospect that consumers may not get a retirement income that meets their needs or expectations remains the central harm for the sector.” According to the Pensions and Lifetime Savings Association (PLSA) the vast majority of adults have a greater than 60% chance of seeing their living standards fall significantly when they retire. The regulator recognises that changes are needed at a societal level, and states that the Department for Work and Pensions (DWP) have promised another review to evaluate the effect of increasing monetary contributions. Hopefully this will lead to some movement on the suggestions raised in 2017. Another emerging trend is the proliferation of small pots which result from people being automatically enrolled and moving jobs. Multiple small pension pots are usually more costly than a consolidated plan and it will be interesting to see if action will be taken to encourage employers to do more, or whether we will see the revival of ‘pot follows member’. On the subject of cost, the FCA clearly has the view that workplace pensions provide the benchmark against which other products should be measured. AE has driven the rise of mastertrusts which provide economies of scale that the regulator expects to see passed on to their members. In their view non-workplace pensions show too much variation and opacity in their charges and this will continue to be a theme. Workplace pensions are of course designed to provide a one-size-fits-all solution and there is no doubt that alternative solutions are required,
particularly in the decumulation space, however the FCA is keen to see that consumers are only paying for additional services and features which they actually need. The Technology Effect The increasing use of technology is a key theme in each of the sectors reviewed. The regulator recognises that technology drives efficiency as well as increasing consumer engagement and provides support for this via its TechSprint project. The downside is however that reliance on technology increases the risk of cyber-crime and high levels of scams and financial crime continues to cause concern. In 2018 Action Fraud reported over £197 million reported losses to investment scams, although the incident of “new” scams seems to be decreasing in the retirement sector. This is exacerbated by the rise of open finance and will continue to require improvements in security systems as well as client authentication processes. Technology also has to be kept up to date. The FCA’s previous cyber and technology resilience report found that the biggest cause of pension service outrages resulted from poor change management within firms, as evidenced by a number of recent high-profile re-platforming exercises. Technology also facilitates access to more personal data. This allows insurance providers to tailor their products and reduce the impact of taking on high risk customers. Within the pension sector this most obviously affects the annuity market, where decreases in healthy lifeexpectancy may have a further impact on the rates available. The Usual Suspects The review draws attention to the fact that there has been an 86% increase in open Financial Ombudsman Service (FOS) complaints against self invested personal pensions (SIPPs), and a 36% increase in complaints about income drawdown. It does acknowledge that complaint levels are in fact relatively low in the pensions sector but points out that the uphold rate for those who do complain is relatively high. Interestingly, the majority of complaints relate to general
page 11
administration or customer service suggesting that people remain blissfully unaware that these are considered to be high-risk products. FCA scrutiny is unlikely to abate. Defined benefit (DB) transfers get their expected mention, with an FCA estimate that unsuitable transfers out of DB schemes could, collectively, result in losses of up to £20 billion worth of guarantees over 5 years. The regulator is no doubt happy to see that the number of DB transfers is decreasing, we can only hope that this is for the right reasons. Poor consumer choices at retirement are also singled out for attention, which is unsurprising following the conclusion of the Retirement Outcome Reviews and the recent “Dear CEO” letter on the subject. On the one hand the regulator is concerned at the number of individuals entering drawdown on a nonadvised basis, on the other it also worries that a higher proportion of advised consumers enter drawdown with the requirement for ongoing advice. This seems slightly contradictory, along with the fact that they are also troubled by the fact that most investment pathways still focus on an annuity end point. No doubt we will hear more soon. In summary, not a lot of surprises, but a welcome recognition that its not all about bad behaviour.
by Fiona Tait Technical Director Intelligent Pensions
page 12
PENSION PILLAR NOTHING TO SEE HERE by Dale Critchley Policy Manager Aviva to be enough to give most people the type of the retirement they want. Compared to contributions going into the gold standard of defined benefit schemes, 8% is pitifully little.
When I’m thinking of topics to write about for this column, I usually start with something that has happened, or is going to happen. But for this one, I’m going to write about something that isn’t happening - for the first time in three years there will be no changes to workplace pension minimum contributions. I’ve written about this before, but I’ll just do a quick recap. Auto-enrolment – the legislation that means all employers now have to offer a workplace pension – was introduced in 2012. Minimum contributions were set at 2% of earnings, typically 1% from employers and 1% from employees. Over the next few years, employers of all sizes set up their pension schemes. Then in April 2018 came the first big change. Minimum contributions went up to 5% (2% from employers and 3% from employees). Then, just a year later, minimum contributions then went up again – this time to 8% (3% from employers and 5% from employees). The really good news is that these increases haven’t seen mass opt outs from pension schemes. Around 90% of people who have been through autoenrolment remain in their pension schemes. But this year there is no change to contributions. Now, that’s no bad thing. Three increases in a row may have been too much for employers and employees and a break was needed. However, there are no further plans for any further contribution increases at this stage and, for me, that raises a couple of challenges. The first is quite obvious, a savings level of 8% is unlikely
But secondly, many people believe that it is actually enough, and build other expenditure around their 5% contribution. A total of 8% is fast becoming the pensions equivalent of 5 a day. It’s the default contribution rate, sitting alongside a default retirement age and a default investment choice. Whilst admittedly this makes for a hasslefree journey for individuals, it can also lead to the assumption that all those ‘decisions’ are correct, which isn’t always the case. Even if in your heart of hearts you know it’s not enough, you can eschew that extra contribution in the same way you can push back on a helping of sprouts having eaten 5 apples already. Since 2017, Aviva has been calling for minimum contributions to rise to 12.5%. We believe this can be phased in over the next few years and would be shared between employers and employees. The 2017 Automatic Enrolment Review recommended people are enrolled from 18 and that the earnings threshold for contributions be removed as way of improving retirement outcomes, but the latest from Government is that they aren’t actively working on those changes. This makes the original mid 2020’s timescale for implementation less likely. So until we see any regulation we have to rely on engagement with employers and employees to improve contributions. This makes things like simpler statements and pension dashboards even more important. Hopefully we’ll see real progress on these soon.
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INNER WORKINGS
DIGITAL TAKES THE PAIN OUT OF COMPLIANCE
Most articles about moving to a digital first, or digital-by-default, approach cover the consumer side of the operation. They focus on how providing a digital default allows companies in the life and pensions sector to deliver products and services to millennials and Gen-Z consumers in a way that suits both their needs and lifestyles. This is the more glamourous side of the digital world and naturally attracts the most attention.
revisions daily and that over US$320 billion in fines had been levied in the 10 years since 2008.
Yet the benefits of a digital first approach extend far beyond dealing with the consumer. For the life and pensions provider, the day to day operations also hugely benefit from the high degree of automation that going digital brings; in particular, it makes the data accrued during all processes far easier to analyse, categorise and report on.
The range of regulation is very broad. It touches almost all areas of the business. But it is at the customer touchpoints that most issues can arise. As long as these are being handled by a combination of manual and digital processes, as most companies are doing at present, the risk of data being lost at the interface is significant and, consequently, the dangers of failing to manage the data and report on it accurately are much higher.
This is particularly important when it comes to ensuring compliance with regulation. The life and pension sector is no different from any other financial services sector. It is getting hit by regulatory changes constantly and it is expected to conform. Deloitte calculated that globally, in 2017, there were over 200 regulatory
These are huge numbers and are forcing life and pension providers to spend more money and effort ensuring that they are fully compliant with the regulatory environments in which they are operating. Given the scale of the penalties, the ability to ensure compliance is becoming a key concern of boardrooms worldwide.
Just as traditional insurers are looking at the Insuretech for examples as to how to improve their customer interactions, so they should look towards the rapidly growing RegTech area to see how the burden of compliance
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could be reduced and the risks of fines from the regulator or of being sued by consumers could be mitigated. A digital first approach will dramatically increase the volume of business completed digitally, ensuring that all data is available for analysis and reporting purposes far more easily than in the current hybrid processes. Take, for example, the current anti-money laundering (AML) processes extant in most financial services providers. These processes tend to be a combination of digitally captured questions on the company’s systems accompanied by copies of key identification documents which are neatly filed away. How much easier it is to manage the process if the documents can be photographed by the individual and uploaded easily from a smartphone of tablet. In one fell swoop, the company has done away with the paperwork and the need for filing it and allowed the customer to do the work. It also means that the digital record can be preserved and makes monitoring the presence of such proof of identity far easier. Similarly, the integration of AI and machine learning can ease the process of monitoring details about the types of business being done and the transactions that are being carried out, ensuring that fraud detection rates can be improved and transactions monitored for signs of fraudulent patterns, to improve overall security for all consumers.
It can be objected that digital interactions centralise customer data in one place, risking a major breach, but it has to be remembered that it is the duty of all companies to protect personal data, whether in physical or digital form. Centralising it allows it to be protected far more effectively and cheaply than spread across a number of systems or when it is held manually. Regulatory reporting is becoming more important and more onerous and having all consumer data in digital form makes it far easier to aggregate it into whatever levels are being required by different regulators. Indeed, some traditional firms are partnering with RegTech firms in order to reduce their compliance burden whilst ensuring a high level of security and to maintain a reputation for being trustworthy with their consumer data. As I have written before, a digital by default approach is very important strategically for life providers looking to be winners, as the millennials and GenZ (the always-on generations) move centre stage. But the benefits in a financial world of increasingly sophisticated regulation extend beyond satisfying customer need. A digital first approach enables providers to manage their corporate risks more effectively and at a lower cost than any other approach. That should mean that compliance departments join marketing and IT as enthusiastic cheerleaders for change to a digital approach.
by Tom Murray Head of Product Strategy LifePlus Solution, Majesco page 15
RETIREMENT PUZZLE
JUDGING FUND MANAGER PERFORMANCE
What do you do when your manager underperforms? There is a vast literature on how difficult it is to know, at least from historical performance, whether a manager has succeeded by skill or just by luck. The converse of this is that it’s equally difficult to judge whether a manager has underperformed because of a lack of skill, or a lack of luck. For any statistical test, we need a null hypothesis. A Sharpe ratio of 0.2 is broadly in line with very long-term equity data, so would represent a worthwhile risk-return from alpha. Some managers over some periods will have performed far better than this - but the point is a Sharpe of 0.2 is still well worth having. If we test managers for a Sharpe ratio of 1, and they fail because they run at 0.2, they’re still likely to doing a useful job in your portfolio. So, what level of annual underperformance do you need to show that your manager is not that skilled? We can run a T-test against this null hypothesis. Taking standard confidence levels, we look at being 80% sure and being 95% sure, so to significance levels of 20% and 5%. But there are some serious issues with this test Firstly, if you’re testing whether underperformance is serious enough to prove
a lack of skill, it’s likely that you’re looking at a manager who has underperformed. In exactly the same way that databases of self-published data are likely to imply managers are better than they are, only looking at underperformers is likely to imply managers are worse than they are. Similarly, if you have 20 managers with uncorrelated alpha, all generating a 0.2 Sharpe, one of them is likely to fail. So, there are sources of survivorship bias inherent in any test of this type. What this all means is that the test is fairly harsh on managers. Say the test implies that active returns of - x% make us 95% sure that the manager does not have enough skill to earn a 0.2 Sharpe; if we accounted for negative survivorship bias, that - x% would have to be even more negative. So, what do we get? The graph below shows how much underperformance you would need, with a 5% tracking error, to show that the manager lacked skill. There is an important caveat here, that the underperformance must be relative to the appropriate benchmark. In particular, a manager with a style bias should be judged against a style-biased benchmark, or assumed to have an appropriately higher tracking error.
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What is clear is that these numbers are large. You may need 20 to 25 years of negative 1% returns to draw strong conclusions. By which time it may well be too late to replace them; besides which, the manager will be different people using different systems and processes anyway, and the early data may be much less relevant. It is hard to prove a lack of skill. So what can you do? You can’t wait for the performance data to come in, which means
(absent extreme losses), you probably shouldn’t fire a manager purely off the back of a bad year, or even a bad few years. What you can do though is judge whether your manager is doing what you hired them to do. For example, if you hired a value manager and analysis of their portfolio found an abundance of growth stocks, that might be a more meaningful flag. But purely looking at past performance is unlikely to be an especially reliable guide.
by Alex White, Head of ALM Research, Redington page 17
SOLVENCY II & BEYOND
THE LIFE INSURANCE PROTECTION GAP: IS AUTO-ENROLMENT THE ANSWER?
When addressing how to close the life insurance protection gap, could people simply need a nudge in the right direction? A quick look at similar efforts to address take up of organ donation, which also faces challenges, could hold the beginnings of a solution. Studies show that humans in many cases are conditioned to choose the path of least resistance, and are inclined to follow the norm. Governments have sought to increase organ donation through making it the “new normal”.This concept could prove relevant to the life protection insurance industry.
it out, and a further 29% had never considered buying it. That encouraged us to understand better what the main barriers are to buying life insurance and what can be done to help the public to overcome those barriers.
Cost, or rather the perception of cost, emerged as one of the main reasons why people decided not to buy life insurance. The respondents over-estimated the cost of buying life insurance significantly, thinking that £100,000 of life cover might cost on average £40 per month, instead of the c£10 per month cost that might be closer to reality. A lack of financial understanding also puts Why don’t people buy life insurance? consumers off. This underscores a desperate We recently conducted a survey of 1000 nationally need for providers to create solutions that are representative adults, to better understand the intuitive, particularly for the younger end of the public’s attitude towards life insurance. One of spectrum for those aged 18-34. the most striking things we found was that 50% of respondents had never bought life insurance. Whilst intuitive products would increase This includes 21% of people who had considered awareness of insurance in general, life insurance buying life insurance in the past, but hadn’t taken remains a difficult subject to discuss at the page 18
dinner table. We think more direct action could help to break this taboo, improving the financial resilience of the 16 million households without life protection insurance in the UK today.
However, when considering whether to spend £10 per month buying life insurance, purchasers often concentrate on the larger number - the £100,000 of cover and whether that is the exactly right amount of cover to take - rather So what might be the answer? If the Nudge Theory than the £10 per month purchase cost that mentioned above were put into practical action, they are buying into. By getting hung up on that one answer might be to include life insurance question, they fail to purchase at all, leaving them benefits inside the auto-enrolment model that financially vulnerable. has been so successful in helping more people save for their pension. From our survey, we know The long term description of the products also that two thirds of the population would opt to puts consumers off - they feel like they are stay in an arrangement where life insurance was signing up for 25 years of premium payments automatically offered. As with pensions, there with no way out if their circumstances change. could still be a choice to opt-out, but the majority In reality, for most people cover can commence wouldn’t opt out - and in one stroke, the financial immediately, and can be simply cancelled at any security of so many families would be improved. point without penalty. This makes the decision to This is not a new idea - other countries already take life insurance less onerous than a 12 month have something similar - so why not in the UK mobile phone contract, or a TV subscription, but this is not clear and obvious to consumers. too? Encouraging people to get covered: what else Is technology the answer? If during that online purchase, some real time and real-person online might help? help were available, could that increase the takeWe know from our survey that the internet up rates? And by help we don’t mean ‘advice’. is often the first place many turn if they are Advice is a loaded concept in the financial thinking of buying life insurance. But we also services space, it comes with many connotations know from speaking to insurers that only maybe of salesmen, paperwork and commission.We just three in every 100 people who start the process mean help - it might be help in understanding of purchasing life insurance online actually buy. some terminology, help in understanding the process and what happens next - enough help We think psychology is at play here and could to push the person through to the conclusion of at least partly be overcome by effective use of actually purchasing the insurance. technology. Anchoring - where an individual depends too heavily on an initial piece of We know there are Insurtechs operating in this information when making decisions - is a key space, but the large established insurers came influence. On a day-to-day basis, many would out as a clear favourite as the ‘provider of choice’ spend £10 without thinking too much about it in our survey. So it is they who have the most to - a couple of drinks in the pub, a bit of shopping gain by taking action now - and most to lose if on the way home from work barely registers. they stand still.
by Melanie Puri, Actuarial Director and Ewen Tweedie, Actuarial Manager PwC UK
page 19
INFORMATION EXCHANGE
THE WORLD OF INSURANCE IS CHANGING COMMERCIAL PROPERTY INSURANCE NEEDS TO GET DIGITAL The commercial property sector is undergoing significant change, and the pressure is on insurance providers serving this market to innovate and keep pace with the evolving demands of its customers. To remain competitive, insurance providers will need to be agile and deliver accurate pricing for the new risks they face. They will also need to anticipate the new dynamics of commercial property – the rise of co-working spaces and build-to-rent for example and develop insurance solutions that will respond to those market segments. Data enrichment will be their ally in this process and can help to automate what have traditionally been manual processes. However, in recent research amongst commercial property insurance providers, conducted by LexisNexis Risk Solutions , the market is not adopting digitisation to the extent it could be. In fact the market appears to be divided over the pace of digitisation in commercial property insurance suggesting a good portion of the sector risks losing market share just at a time when new opportunities are emerging. A report from JLL , a leading global provider of real estate and investment management services,
presents a vision for 2020 which suggests encouraging prospects for commercial property insurance. The report predicts the rise of innovation districts in conjunction with universities and local authorities; more investment by landlords in their commercial properties as leases shorten and occupier expectations change; demand for space for urban logistics and life sciences businesses (such as pharmaceutical and environmental firms); and office rental growth in London and other major commercial hubs. The report also predicts higher levels of investment in the commercial property market from overseas as well as investment in IoT to create integrated digital workplaces. With property businesses and the business community as a whole predicted to embrace data and technology more fully for their own governance and operations, it follows that they may expect their insurance provider to be doing the same to deliver a slick and competitive service. It seems the market has some way to go before this becomes a reality. In our study, we found 77% of commercial property insurance providers use manual underwriting processes, leaving just 23% using mostly digitised underwriting. Furthermore,
page 20
only around half of the insurance providers we spoke to (55%) said they think the pace of digitisation in pricing and underwriting has become more prevalent in the past two years. The application process for commercial property insurance has seen the biggest digital transformation with 42% of insurance providers stating this is all or mostly digital. This is not wholly surprising as insurance providers recognise they need to keep pace with the streamlined application process most people experience in personal lines. This is particularly relevant for the small business sector where the owner may also be the buyer of insurance. In contrast, the claims process remains almost totally reliant on human skills - only 17% of providers say claims processes are all or mostly digitised. Clearly, commercial property claims can be complex and high cost, demanding human expertise to manage the claim, but even so, the level of digitisation in claims is lower than expected. While opinion is split over the pace of digital transformation, based on our research, the sector recognises the significance of data enrichment to gain a more holistic view of the risk with 77%
of insurance providers using or planning to use data enrichment. Here, perils data on flood, fire, subsidence risk has the highest value to the market, followed by insights on prior claims related to the property and the policyholder. The key is to build these insights into the quote process and throughout the customer journey in an automated way for faster, more accurate decisions. With an instant view of the property risk the opportunity also becomes more real for insurance providers to take a proactive role in helping customers mitigate those risks. Sharing past claims data risk for example will flag to a customer the risk of flood so that they can take action to lower their risk in the future. An industry-wide contributory database of prior claims data for commercial property would certainly benefit the entire market and help to build a more detailed picture of the state and history of a business and its owners through instantaneous insight. However, for commercial property insurance providers to truly leverage the opportunities coming, they need to transform, integrate data and automate decisions and take their businesses as a whole into the digital age.
1. LexisNexis Risk Solutions has published a white paper, ‘A digital divide?’, sharing the results of the latest study, which involved more than 100 insurance professionals working in relevant lines of insurance. 2. https://www.jll.co.uk/en/trends-and-insights/research/property-predictions-2020
by Jonathan Guard, Director Commercial Markets LexisNexis Risk Solutions, UK & Ireland page 21
LIGHTS, CAMERA, ACTUARY... Bolton Associates’ focus is specifically in the non-life actuarial space; the largest dedicated GI actuarial specialist in the market, working across the whole insurance market. The consultants at Bolton Associates offer an exceptional service, managing the process with the utmost tact and respect for all parties. We are passionate about our market, taking great interest in the insurance world as a whole; keeping up with trends and changes, and maintaining our ever-expanding network. We are good at what we do, because we enjoy what we do.
search & selection
The next focus for Bolton Associates’ Spotlight page, is an interview with a leading actuary within one of the Lloyd’s Broking houses. With the broking firms now offering important analytical, actuarial and deal-assisting advice, for the next few months Zoe Bolton will be talking to the senior actuaries in these firms, getting a brief insight into their career paths and visions for the future. This month Zoe talks to Richard Rodriguez at Guy Carpenter.
What is your current role, and how did you end up in it? Head of Advisory and Analytics for the UK and Global Specialties. It was not the usual recruitment process as I was contacted by an ex colleague who operates for Guy Carpenter out of the US. The role looked interesting and having never worked in a broking house directly before so I decided to try it. What is the defining moment of your career to date?
from being viewed as purely transactional to trusted advisors who also perform transactional services. How does your actuarial training and background assist in your day-to-day role now? As expected we deal with a lot of data analysis, interpretation and communication of results both internally and externally. Actuarial training provides a foundation for much of this work but actually the real benefit comes from mixing the training with proper experience, including learning by making mistakes.
Starting up London office of the then consultancy EMB some 15 years or so ago and building the team, client base and revenue. When you are the only one who works in an office and you have a big agenda it focuses the mind.
When did you first join the Institute & Faculty of Actuaries, and what advice would you give to those students looking to emulate your career path?
In your opinion, what prepared you best to take on your current role? My role is a mix of leadership, management and technical aspects operating at a variety of levels throughout GC. So I would say that having performed a variety of roles in my career at different levels, both within companies and for companies, I have a good appreciation of what could be done for our clients, what development opportunities our actuaries could have and what it takes to get things done and make change happen. What is the biggest challenge you face in your role within this market?
I joined the institute a very long time ago as my membership number attests. I would say that if an opportunity arises that is different to your normal day job and it appears attractive but a bit more risky to you then take a chance, what really do you have to lose? If you had your time again, what would you do, career-wise? No fundamental changes to what I have done. However, I would tweak some things along the way to make them more fun.
As we provide advisory and analytical services to our clients the key challenge is to move us page 23
A VISION FOR 2020
by Alasdair Gill,, Head of Investment, Scotland, XPS Pensions Group DB pension schemes endured a turbulent year in 2019, with the relatively benign growth markets being overshadowed by large moves in gilt markets, impacting funding levels, particularly for schemes with low levels of liability hedging. Late summer was particularly challenging, when yields on long dated UK Gilts fell below 1% for the first time in living memory.
consequences for many pension schemes, in particular those that offer benefits linked to CPI, and for those that invest in index-linked gilts. Put simply, the prospect of RPI’s calculation method changing to align with CPIH sometime in the next 5-10 years will change the valuation of most scheme’s benefits, as well as potentially having a big impact on the asset portfolio, and liability hedging structure. Trustees will need to understand the likely impact on their scheme, the potential impact in different scenarios, and then take a view on how they should position their liability hedge. We expect this to be a material issue for many trustees, particularly those with high levels of inflation hedging and CPI based pension increases.
For trustees and investment committees, there were a range of regulatory matters to attend to, in particular, new Regulations on the Statement of Investment Principles (SIP), and the CMA Order requirements to set objectives for investment consultants. This all took up agenda time, and so (hopefully) 2020 will be a time to resume the focus on making sure your investments are 2. Reviewing your diversification working in the best way for your scheme. So what should we be concentrating on? Amongst the variety of issues that will inevitably crop up it will be good to spare some time to consider the following three areas of focus during 2020: 1. 2. 3.
On the growth portfolio side, whilst 2018 was tough for many diversified growth funds, 2019 saw some recovery and generally better returns, buoyed in particular by strong equity markets. So what should Trustees be focused on as we move into 2020?
Liability hedging and RPI reform Reviewing your diversification – are your DGFs delivering? Investing sustainably – are you doing enough?
Many will be pleasantly surprised by better returns in their diversified growth funds (DGFs), but we would beg the question as to how diversified the better returning funds were – is this just the equity market beta delivering? How protected would you be in a downturn? We 1. Liability hedging RPI reform would encourage trustees to ensure that your The consultation on RPI reform is opening on 11 growth portfolio is truly diversified between March 2020. This issue could have far reaching discretely different return drivers. page 24
It may also be time to consider more contractual income based investments that can both reduce volatility and produce a higher yield to the portfolio, without necessarily compromising on return potential. Such portfolios are growing in popularity as many DB schemes in particular are becoming more cashflow negative as they mature.
Increasing bodies of research are showing that investments that engage on ESG and sustainability matters can be successful in delivering added value. In addition, even relatively straightforward tilted index approaches have historically delivered returns higher than the broader market. Summary
Trustees and investment committees will have plenty on the agenda for 2020.The reform of RPI will require attention to be directed to Trustees will have considered how they manage each scheme’s inflation hedging nuances, so Environmental, Social and Governance (ESG) that Trustees are prepared when this issue gets risks in 2019 when reviewing their SIP. Reporting resolved. Whilst growth portfolios may have on this will commence in 2020 and so this will delivered better returns this year, 2020 would be remain on the agenda, particularly in the UK as a good year to ensure the growth portfolio is the UN Climate Change conference (COP26) is suitably diversified and resilient in any potential held in Glasgow in November.We strongly believe future downturn. that trustees should be looking for opportunities to harness a more sustainable investment policy Finally, building on last year’s ESG efforts, to capture new investment opportunities, and Trustees should consider how to build a more not just see this as a risk management exercise. durable growth portfolio that is set up to thrive So is there any evidence that a sustainable as society transitions towards a more sustainable economic model. approach can deliver? 3. ESG and sustainable investing
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search & selection Pricing/Reserving Actuary
Capital Actuarial Analyst
General Insurance Up to £110,000 Per Annum City of London
General Insurance £55,000-90,000 Per Annum London
Experienced Actuary required for Leading Lloyd’s Specialty (re)insurer in a mixed Pricing/Reserving/ Planning role. You will have experience in the Lloyd’s/ London Market and experience of Specialty Liability classes and the ability to write reports with little supervision, excellent communication skills and academic ability. This role is offered on a .perm or fixed term contract.
Highly reputable Lloyd’s and London market player is looking for a part-qualified / senior student to take on a broad role covering all aspects of the capital process. You will have non-life actuarial experience, preferably within capital modelling. Those with personal lines or consultancy experience will be considered. Excellent academics necessary and experience of Igloo/Tyche/ Remetrica.
REF: ZB 001372 PW
REF: ZB 001307 HT
Chief Actuary
Head of Capital
General Insurance £150,000 Per Annum London
General Insurance Up to £120,000 Per Annum London
Fantastic opportunity for a senior actuary to step into a Chief Actuary role. Reporting into the CRO you will manage a small team covering both reserving and capital. Ideally you will hold the Chief Actuary certificate or will be eligible to secure this. You must be dynamic, business minded and have experience of dealing with board members. .
New managing agency has an opening for a qualified capital actuary to head up their capital. Reporting into the Chief Actuary you will take full responsibility for all capital requirements. You must be proactive, business minded with a strong technical capital background and excellent communication and presentation skills.
REF: ZB 001308 CS
REF: ZB 001373 CS
Technical Pricing Manager
Pricing Actuary
General Insurance £80,000 per Annum Leeds
General Insurance £80,000 Per Annum City of London
International re/insurer is looking for a Technical Pricing Manager to join their team. Excellent communication skills required as you will be building relationships with underwriters to add value to the decision making. Knowledge and experience in pricing specialty insurance products would be advantageous.
A Lloyd’s/London market (re)insurance business is looking for a qualified actuary to join the pricing team. To be considered you must have strong communication skills and have demonstrable experience gained from another London Market reinsurer in a pricing capacity.
.
REF: ZB 001371 OG
REF: ZB 001306 MM
www.bolton-associates.co.uk page 27 +44 (0)207 250 4718 Bolton Associates, 5 St. John’s Lane, London, EC1M 4BH
ACTUARIAL POST RECRUITER OF THE YEAR 2012 . 2013 . 2014 . 2015 . 2016 . 2017 . 2018
EXCLUSIVE IN-HOUSE PENSIONS POLICY ACTUARY LONDON
£ excellent package
Star Actuarial Futures are pleased to be bringing this role to market exclusively on behalf of RPMI Railpen, the asset manager for the £30 billion railways pension schemes. The railways pension schemes have over 350,000 members who are connected to the railways industry. There are over 100 actuarially independent sections and over 150 sponsoring private and public sector employers. We are seeking a qualified pensions actuary with excellent communication, negotiation and inter-personal skills to join the Pensions Policy team. With detailed knowledge of pensions legislation and defined benefit arrangements, you will also possess experience of dealing with senior lawyers, actuaries, covenant advisors, trustees and employers at board level. The Pensions Policy team sits alongside the Employer Covenant team within the Integrated Funding team which will expand this year to deliver a client asset liability modelling function. The Pensions Policy team will play a key role in the assimilation of the new function.
Key responsibilities include: • Taking the lead on policy relating to particular clients, having responsibility for reporting to the Trustee Board and the Trustee’s Integrated Funding Committee on these clients and engaging with the Chairs as necessary. • Providing actuarial pensions consultancy services to the Trustee, employers and Pensions Committees (local trustees), covering results of actuarial valuations; addressing shortfalls or surpluses; changing contribution rate patterns; and changes in benefits. • Providing benefit design pensions consultancy services to the stakeholders above. • Developing integrated funding solutions covering contributions, benefits, investments and covenant support in conjunction with experienced specialists and external professional advisors. • Providing investment strategy pensions consultancy services as part of integrated funding solutions. • Liaising with governmental bodies, principally the Department for Transport, on pension matters affecting the railways schemes. • Liaising with the Pensions Regulator on scheme funding matters as appropriate.
Key Requirements: • Pensions industry expert and senior actuary covering both DB and DC arrangements with significant client-facing consultancy experience at Board level. • Ability to operate at senior levels across a range of disciplines, including: the railway industry; Government; the Pensions Regulator; and professional advisors. • Excellent analytical, investigative and influencing skills.
Please contact Adam Goodwin of to make an application or for further information.
Adam Goodwin
ASSOCIATE DIRECTOR
M: +44 7584 357 590
E: adam.goodwin@staractuarial.com