Insurers – VFM and the Competition Commission.

Competition commission

 

The FT Adviser magazine has published a short piece leaking a story that has been doing the rounds for a few weeks.

It would appear that the insurers who have been subject to the scrutiny of an independent governance committee for a year, have decided that enough is enough and are deciding on the means by which they wish to be judged

As you’d expect, detail is skimpy and confusing, the plan is about as transparent as a brick. At one moment the reporting talks of benchmarking legacy products, the next of the value for money from their current workplace pensions. Confusion reigns – which is BAU.

What we know is what Alan Ritchie, head of Standard Life’s workplace pension proposition is telling us.

There are a group of people working together – pretty much all of those providers that have had an ICG report – but it’s early stages.

“I’m being particularly proactive myself as are some other providers to get a group together to start defining what such benchmarking would include and to take.”

The article does not give us any detail of what this benchmarking is about, who will be in charge and why the IGCs should be told how to judge providers – by providers.

Surely this is entirely the wrong way round. Whatever is being benchmarked, it should be the IGCs and not the insurers who should be setting the rules.

Pete Glancy of Scottish Widows is also quoted in the article.

“We are conscious different products have been developed for different target markets, so a simple comparison of product features would not be appropriate,”

This is the ABI line on value for money since the start of the argument in 2014. But it doesn’t wash. As this blog has been at pains to point out, the Dutch have a  system of establishing whether an investment product is giving value for money, I explained how here.

To understand value, we need to know the price we are paying for the management we are getting. The Dutch do it and so can we.

According to Scottish Widows, the solution to all this confusion is to ask the customer what they know.

For an ICG benchmark, providers would seek a meaningful definition of value for money from customers, he (Pete Glancy) said, within the context of how closely products and services are meeting their particular needs and expectations.

This is a pretty odd way to benchmark a product which the Office of Fair trading stated in its damning report of the insurance industry, the public knows nothing about.

OFT

The answer to value for money is not in the gift of the providers, they are responsible for allowing their problems to become as transparent as a brick, they are the problem not the solution.

Nor is the answer coming from consumer confidence research – we (the consumers) know nothing, nada – zip!

We are the victims of the problem that has been created for us by decades of product management by the insurers. Don’t go asking us to determine value for money on what we bought – we have our representatives set up to do that work- the Investment Governance Committees.


Independent is as independent does.

I have written several times about the importance of these Independent Governance Committees remaining independent. Whatever the reasons for the insurers congregating to create a benchmarking service for their IGCs, good governance tells me the IGCs should politely say “no thank you”.

There are good people at the FCA charged with making “value for money” a concept that the public can trust. The measure and the benchmarking were given to the IGCs to decide upon. It is the IGCs and not the insurers who should be congregating to agree a proper measure.

The Prudential have suggested a simple benchmark- a return of 3% above the consumer price index (net of charges) from the pension. That should be explored further

If IGCs want to dig deeper and find out what is working and what isn’t within the workplace pensions they are managing, they have people to work with independent of their providers. There are international benchmarking services they can call upon.


Keeping the IGCs feet to the fire

This blog will reject any pact between IGC and Provider based on the IGC doing what the Provider tells them to. IGCs should look at the Provider’s proposition- whatever that turns out to be and judge it alongside alternative benchmarking services.

If they adopt a model put together by the providers it should only be after the alternatives have been properly examined and rejected.


Here is how they do it in the Netherlands.

Competition commission

 

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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