Studies show consumers and providers view a with-profits benefits statement in different ways, so should we be communicating value more clearly? Rosalind Rossouw and Ben Stroud investigate.
Some images, whether in art or science, resist consensus. We can look at an image and see it one way, only for someone else to look at the same image and see it entirely differently. Take 'My Wife and My Mother-in-Law', an optical illusion by the cartoonist William Ely Hill, published in 1915. Some observers perceive the image as an old woman, while others see a young one. Another ambiguous image, 'The Dress', went viral on social media in 2015. Nobody was quite sure whether the dress was black and blue or white and gold.
In short, two individuals or groups, such as consumers and providers, might look at a document - in this case a with-profits benefit statement - and view it very differently.
The Value of With-Profits for Consumers Working Party was established in September 2016. Its primary objective is to determine whether consumers understand the value of their with-profits policies. We conducted a consumer survey in 2017 to improve engagement and communication with consumers. Market research company YouGov collected responses from 2,851 consumers who all held at least one financial product.
One in six (473) of the survey respondents held a with-profits policy, and after reviewing their demographics, we felt the sample was representative of typical with-profits policyholders. The survey included a question on what information they as consumers currently receive and like, or would like to receive, as part of their annual statements.
Policyholder perspective: information that consumers like to receive
Most survey results confirmed expectations - investment mix and performance, current and projected values, and premiums paid and charges incurred all scored relatively highly (see Figure 1 below). On the other hand, a few categories scored lower than anticipated. Although almost half of the respondents selected the projected maturity value for inclusion, they appeared less interested in how they might improve the value, or the risks and protections they should be mindful of. In addition, although three out of five respondents selected the current cash-in value of their policy for inclusion, there was a disappointing level of interest in guarantees.
We conducted a separate review of with-profits benefit statements. As all working party members are actuaries, the review was not informed by consumer insight. However, we endeavoured to provide a consumer perspective. An encouraging number of providers shared anonymised with-profits benefit statements with us, allowing for a review of 36 of these statements.
Although it was not prescribed, we were particularly interested in comparing the contents to the elements included in Outcome 2 of the Financial Conduct Authority's Legacy Review. At the time of the exercise, we also recognised that firms which submitted their benefit statements to us for review wouldn't yet have had an opportunity to incorporate the outcomes of the Legacy Review into their communications.
Provider perspective: information that consumers receive
The Working Party report contains a full analysis of the benefit statement reviewed. These were all of a good standard in the opinion of the working party, and provided consumers with a great deal of valuable information. The benefit statements reviewed were also bespoke and detailed, and this highlighted a lack of consistency between providers. The report also makes suggestions for improvement, and includes some examples that we considered particularly helpful to consumers.
Although the consumer survey and the provider benefit statement review were completed independently and are not directly comparable, there are certainly elements of commonality between the two. Where possible, we contrasted the consumer survey results with the analysis of the provider benefit statement review, allowing the comparison of consumer and provider perspectives.
Encouragingly, there are elements that align well to the consumer survey results, particularly for current and projected maturity values. The benefit statement review noted a few areas where firms could work to improve their communications, and these are reflected in the contrasting consumer and provider results for charges incurred and premiums paid.
The Legacy Review suggests that an explanation of the charges being deducted - for example, the guarantees that incur a charge and policy fees - and an indicative level of charge (in monetary terms) applicable to the policy should be included in a communication. The Legacy Review also suggests that the benefit statements should include the value of the premiums paid since the last communication. Just under half of the respondents selected these elements for inclusion in their annual statement, and although this might be challenging to ascertain, only a third of benefit statements reviewed included some form of information relating to charges, and less than a third of the benefit statements reviewed included the value of the monthly premium.
The most notable disparity between consumer and provider perspectives is the emphasis providers place on associated death benefits, and explanations and values of options and guarantees. Although the benefit statement review found that it wasn't always obvious to a reader what was guaranteed and what was not, the majority of benefit statements reviewed included the value of guarantees and associated death benefits.
Using the consumer survey results to explore this disparity further, the survey also asked respondents for their views of the benefits of with-profits products (see Figure 2 below). The responses were mixed, but the one result that stood out clearly was that less than one in five respondents viewed guarantees and smoothing as benefits of a with-profits product. This is in stark contrast to the prevailing view among actuaries about the defining benefits of with-profits products over other investment types.
Respondents identified several benefits to their policy, including tax efficiency and being able to invest in a wide range of assets. While these are certainly benefits, they are not characteristics specific to with-profits. One in six respondents were unable to identify a benefit to their policy from the suggested options.
When writing communications to policyholders, we often focus on avoiding jargon and ensuring that any complex actuarial terms have been described clearly and in plain English. This practice should continue, but we should also consider how to better communicate the value of a policy to the consumer. These unexpected survey results cast doubt on whether consumers truly understand the benefits of their with-profits products.
The results should also invite us to consider why our thinking is out of line with consumers' thinking. As actuaries, might our value lie in us communicating product-specific benefits more clearly to consumers, to align their perspectives with the value we place on these elements? The working party encourages providers not only to continue ensuring that their communications meet the needs of consumers, but also to become increasingly attentive to the value a consumer might draw from those same communications.
Rosalind Rossouw is head of business planning and capital management at Sun Life Financial of Canada (UK)
Ben Stroud performs with-profits governance and experience analysis at ReAssure UK