I would like to comment on actuarial research papers on policyholder reasonable expectation (PRE). Actuaries have been taking an unduly narrow understanding of the issues of fairness.
It is not just a case of whether or not PRE is the same as treating customers fairly (TCF), or achieving fairness in bonus systems between cohorts of policyholders, or fairness between policyholders and shareholders.
Even other tramlines such as Life Assurance and Unit Trust Regulatory Organisation (Lautro) rules and the FCA’s Conduct of Business Sourcebook (COBS) rules are important but, not so to speak, the last word, as life offices are also bound by the law of the land. I refer, for example, to the case of O’Hare v Coutts. The judge said COBS added very little to what is already in common law.
In particular, actuaries take cognisance of contractual benefits but interpret this concept in a malevolently inadequate way. When actuaries talk about contractual benefits, what they really mean could be termed ‘policy document’ benefits. In fact, contractual benefits are much wider, including oral promises or collateral guarantees. The actual liability to the life office can be more than what is in the policy document, as a contract can be part spoken and part written – for example, where a company rep promises that a specified target amount will be achieved.
Barrister Adam Samuel is the leading light in this area. His book on financial services gives examples of contracts that are part oral and part written.
18 January 2017