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The Actuary The magazine of the Institute & Faculty of Actuaries

Policyholders’ unreasonable expectations

I found Rob Steel’s letter about the Equitable’s problems refreshingly simple. Especially the words: ‘When TB was first introduced, the formula was mentioned in the first bonus notices, but was dropped in later years simply to improve the layout’, may remind other actuaries of instances when they have been under pressure to be less fussy about details.

What also caught my attention were his final words, ‘policyholders’ unreasonable expectations’. I used those words myself way back in 1991 in the course of a discussion on a sessional paper about the demutualisation of a life office. A chuckle rippled round Staple Inn Hall, but the problem was already serious, in that no office dared reduce its principal rate of bonus in face of competition and the annual bonus had come to be regarded as virtually guaranteed.

My own generation should have fought harder to keep the word ‘reasonable’ out of any legislation or regulation, as it is not only subjective, but is variable with time, and hindsight.