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09

President's comment: A question of expectations

Open-access content Thursday 1st November 2012 — updated 5.13pm, Wednesday 29th April 2020

Philip Scott looks at practical ways in which the Profession is working to remove the tarnish of mis-sold financial products

2

I wrote last month about the work of the Profession's practice executive committees (PECs) and how best to continue to promote their work. This month I want to discuss the role of the PECs in assisting the development of services that actuaries deliver for members - but with the 'end-user' in mind.

The story is a familiar one: consumer buys product, product fails to deliver what was expected, consumer complains, industry is tarnished for mis-selling. What is needed to stop this cycle of mistrust is to ensure that products are designed to deliver consumers' expectations.

I fully support the Institute and Faculty's commitment to working in the public interest. But I also understand that a balance must be struck between that and the work of the PECs in their primary task of supporting our members. To this end, we are working hard with the PECs to deliver both relevant continuing professional development that is not simply a tick-box exercise and forward-looking research that builds a body of knowledge to inform actuarial debate. The aim is to help you, as actuaries, deliver services to your clients - including the companies you work for, individual clients and ultimately the public as end-users of a financial product.

In my opinion, for the areas of pensions, life assurance and general insurance, we need:

  • Good pensions that people want to save for
  • Savings and protection insurance with valued guarantees that work
  • Motor and home insurance that offers fair prices and pays the claims needed.

The investment required to develop these products might be substantial but should yield rewards in terms of improved business over the next generation of consumers. At present, a number of the PECs have commissioned targeted research that may lead towards the goals we seek and develop the tools needed.

We have also established a hub of research in The Actuarial Research Centre (ARC). This is designed to create a bridge between actuarial research and business and is a joint venture between the Institute and Faculty of Actuaries and the Scottish Financial Risk Academy (SFRA). Its research aims to be relevant, innovative and practical. Two PhD students will be enrolled in its first year, supported in part through corporate sponsors.

They will research banking liquidity risk and liquidity risk premiums on corporate bonds. This will provide academic insight targeted at solving business problems and identifying unexplored opportunities. The point is to help companies develop their businesses and provide a real return on investment.

But relevant and informative research continues to be produced by all PECs and is frequently being picked up by the press and public. For example, the general insurance working party on motor claims received extensive publicity for identifying the rise in the proportion of reported accidents involving bodily injury and the link to unprecedented activity by claims management companies and hence costs to insurers.

Another valuable piece of work is being undertaken by the Solvency II transitions working party, looking at legislative gaps and producing direction for members. If you have an area of expertise and would like to contribute, there are opportunities available in many other PECs and their working parties.

The article on p12 highlights the benefits of volunteering, in particular the opportunity to:

  • Develop skills
  • Raise your profile and that of your employer
  • Be involved in the cutting edge of change and thought leadership
  • Network with peers and share ideas
  • Gain a wider perspective and experience of work outside your own specialist area
  • Work alongside industry experts, and
  • Enjoy an intellectual challenge outside work.

The PECs and their working groups produce cogent responses from the Profession to various consultation documents and drive forward change in the right direction. Examples have been the consultation response earlier this year to the Association of British Insurers' Consumers in the Retirement Income Market paper and the consultation from government to widen its range of debt instruments to include super-long and perpetual gilts.

In addition, we have an ongoing campaign of inviting MPs to meet us so that we can lend our expertise to their committee work. It is vital that we make the best use of the talent of our volunteers and encourage people to get involved -in this way we can promote the work of the PECs and ultimately influence the development of products for the good of the end-user.

This article appeared in our September 2012 issue of The Actuary.
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