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The Actuary The magazine of the Institute & Faculty of Actuaries

Mark of quality

By the time you receive this issue of The Actuary, the Pensions Protection and Investments
Accreditation Board (PPIAB) will have
announced the names of the first brands to be granted use of the Raising Standards quality mark. This article looks at the background to the Raising Standards initiative, what brands have to do to be granted the right to use the quality mark, and what has happened in the year since the launch of the scheme.

In the late 1990s leading providers in the UK life and pensions industry, under the auspices of the Association of British Insurers, decided that collective action was needed to improve public confidence in the industry, and that the best way to achieve this would be by demonstrably raising standards. Their overall aim was to create an environment in which more people would make adequate financial provision for their futures. You may have heard of this initiative under the name of Project SALTR (savings and long-term risk). However, it has since been renamed as the Raising Standards quality mark scheme.
The industry sponsored research with consumers to examine their main areas of concern about the financial services industry and to explore alternative ways of improving public confidence. The Raising Standards quality mark scheme is the result. By raising standards and improving public confidence, the scheme aims to create a positive operating environment and increase the size of the long-term savings market.
The initiative was launched on 17 October 2000. However, to give those brands seeking accreditation time to demonstrate that their standards met the level required by the scheme, it was agreed that the first accreditations would not be announced until the first anniversary of the scheme.

How do brands earn the quality mark?
The Raising Standards scheme encourages brands to make three promises addressing the three main areas of consumer concern identified by industry research:
– Clarity and comparability of information.
– Appropriateness of the products purchased.
– Customer service.
Accredited brands will make the following promises:
– We will:
– communicate in clear language;
– inform you regularly how your products are doing;
– set out the benefits and costs of products clearly.
– If for any reason you decide in the first 30 days that you do not want the product you have bought, we will give you your money back less, for single premium investments, any fall in the investment value.
Qualified advisers will recommend that you buy products suitable to your needs. You have statutory rights to compensation if at any time it is shown that a recommendation was unsuitable when it was made.
– We will be here to help you throughout your relationship with us.
Brands wishing to use the quality mark and make these consumer promises must meet the eight standards that underpin them. These standards have been developed by the financial services industry in consultation with providers, regulators, and consumer groups. The development of the standards was driven by the Industry Standards Group (ISG), which reported to the Life Insurance Council of the ABI. The eight standards are as follows:
1A Clear and comparable documentation This standard covers four key documents:
– key features documents;
– illustrations;
– yearly statements;
– with-profits summaries.
These documents must describe the features, benefits, and costs of each product by answering standard questions in a standard sequence. They must also pass a clear communication test.
The with-profits summary is a new document that must be issued at the point of sale (where relevant) to explain the approach to the management of with-profits business.
1B Presentation of charges All charges must be presented:
– in clear language;
– comprehensively all charges must be described together;
– in consolidated form.
The overall impact of charges must be shown by a reduction in yield calculation at three points in time during the life of the contract in the key features document.
Certain product-charging structures must be discontinued. These include:
– the bid/offer spread;
– initial/capital units;
– policy enhancements on with-profits contracts that are not reflected in the maturity/surrender value; and
– initial charges on re-invested income resulting from tax or other rebates.
These product-charging structures must be phased out on all products open to new business by 1 October 2004, but in practice are likely to be phased out sooner. No products launched after accreditation may include these discontinued charges.
1C Yearly statements Customers with investment products sold after accreditation must be provided with a statement at least once a year. The content and layout of this is prescribed.
2A Cooling-off period An extended cooling-off period of 30 days will apply, except where not permitted under the regulations, for example, pension transfers and annuities.
During this time, customers buying regular premium products who cancel their policies will receive their money back. Customers purchasing lump- sum products will receive their money back less any fall in investment value. The cooling-off period must be described in the key features document.
2B First year ratio The first year ratio is calculated for each year’s cohort of customers and is the cost (broadly, the excess of premiums paid over benefits received, including any surrender value) suffered by those customers who lapse their investment in the first year as a proportion of the total first year new business premiums received for the cohort.
Brands using the quality mark must calculate this ratio for four product groups and must meet specified benchmarks for each group.
3A Customer satisfaction More than 94% of new customers and 90% of existing customers must be satisfied with the service they receive. Customer satisfaction must be measured using an approved methodology that sets out the way in which customers must be selected and which asks questions about satisfaction with specific areas of customer service.
3B Here to help The key features document and the yearly statement must state the arrangements in place to handle customers’ questions.
The key features document must also state how customers can make complaints.
3C Complaint management Customer satisfaction with the way in which complaints are handled must be measured at least annually, using an approved methodology.

Brands that wish to use the Raising Standards quality mark must demonstrate to the PPIAB that they are meeting or exceeding all of the standards for all of their individual life and pensions products, retail collective investment products, group personal pensions, and stakeholder pensions sold in the UK. Brand is the name used by a company in its presentation to consumers and includes all the sub-brands that the consumer associates with the main brand, for example Patience Unit Trust Ltd, Patience Life, and Patience Life International (the off-shore subsidiary) are all part of the Patience brand. Impulsive Pensions might be part of the same group but would be a different brand if the customer does not readily associate it with the Patience operations.
The PPIAB is an independent body that has been set up to administer the Raising Standards quality mark scheme. The PPIAB has responsibility for making sure that brands using the quality mark continue to meet the standards and are using the quality mark appropriately. It has a small team of accreditation consultants who are responsible for checking that standards are being met. It also uses external designated agencies to check that certain standards are being met, eg Tillinghast-Towers Perrin for standard 2B (first year ratio) and NOP for standards 3A (customer satisfaction) and, eventually, 3C (complaints).

Reactions to the launch
Different brands have responded to the launch of the initiative in different ways.
Forty-nine brands have publicly committed to the objectives of the initiative. A number of these are working hard to gain early accreditation. Others have decided to implement the improvements required in conjunction with other strategic initiatives, such as re-branding or product rationalisation. A third group (who have not necessarily publicly committed to the scheme) are not sure whether or when they will formally apply for accreditation but are keeping their options open by ensuring that all new products comply with the standards. The good thing about all these strategies is that all of these approaches will lead to things improving for the consumer.
Against a background of wide support, there have been occasional criticisms. Some have expressed the view that CAT marks are a better way forward for the industry. There are of course a number of differences between the scheme and CAT marks. The Raising Standards initiative applies to all the products marketed by a brand, whereas companies can offer products that have CAT marks alongside products that don’t. Further, the Raising Standards initiative addresses a wider range of issues than CAT marking.

The future
The ISG will continue to meet, both to provide clarification on the standards and to ensure that the standards remain relevant and effective. They are already considering the possibility of extending the standards to group products and covering e-commerce in more detail. Any changes will follow extensive consultation and appropriate transitional arrangements.
The PPIAB has suggested that by mid-2002 between ten and 12 brands are likely to seek accreditation, representing about 35% of the industry (by premium). More brands will follow. This should mean that, over time, the public will become increasingly familiar with the new quality mark, and that the initiative will begin to achieve its aims.