Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Moody's - Climate Risk Insurers series
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • June 2016
06

Letter: Reserving for complaints

Open-access content Monday 23rd May 2016 — updated 5.50pm, Wednesday 29th April 2020

The pensions model that has served the actuarial profession for so many prosperous years is broken.


I comment on Peter Morris's letter in the The Actuary May issue (bit.ly/1Wu7pXQ).

He mentions consumer detriment where policyholders have been exposed to undue investment risk. As he says, policyholders then have a legitimate cause for complaint. He seems to be implying that the compensation schemes will not threaten life office solvency: "not mitigated by compensation schemes". On the contrary, 

I suggest that actuaries have been complacent about the threat of compensation schemes to life-office solvency. 

Perhaps they have assumed that if the investments ill-perform, that will be the problem of the policyholder rather than the life office. Actually it is the life office's problem if the aggrieved policyholder can successfully seek redress in respect of his unsuitable policy. Such a complaint may well succeed if the policy was misrepresented to him. In fact, all he needs to do is to invoke the case of Savilles v CCL. This groundbreaking case means that if the policyholder proves that his policy was toxic, then his case is won irrespective of what he was told or not told. The case of Plevin v Paragon has had the attention in the media, although Savilles is a far more important case in my view.

Generally speaking, it is assumed that a life office cannot be troubled by a 'run on the bank' situation. The reason being that the surrenders will be on a penal basis, so that the life office will have the funds available to meet the surrenders bill. Complaints redress is another kettle of fish. The redress will be on a special compensation formula in every case. This means that the 'pay-off bill' for each case will be much more than an ordinary surrender value. We can think of these as 'super surrender values'.

Life office valuations should have a built-in contingency rate for enforced redress compensation. 

If there is good reason to suspect the redress stampede might emerge at some future date, then reserving for complaints could be a major component of the valuation reserves.


Anthony Pepper 

9 May 2016

This article appeared in our June 2016 issue of The Actuary.
Click here to view this issue
Filed in:
06

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Senior Underwriting Risk Manager

London (Central)
£85K-£95K + Benefits
Reference
124386

Reserving Manager (Contract)

London (Central)
£1200 - £1400 per day
Reference
124385

Life Actuary - Contract - IFRS 17 Financial Impact

England, London / England, Bristol / North Yorkshire, England
£900 - £1150 per day
Reference
124384
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2022 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ