Zurich’s IGC – keeping Zurich honest.

zurich

Zurich ‘s IGC Chair’s statement is out ; it’s punchy. It’s chair, Anna Bradley has a much wider sphere of influence than just pensions and it shows. This is from her opening remarks

…you have told us that service standards for pensions should be as good as those in other sectors. So, we have asked Zurich to give us better information about how they compare with other similar companies, and other sectors. This will allow us to agree service standards for the future which are likely to be more challenging.

For the first two decades of this century, Zurich was a progressive provider of corporate pension services  to employers and trustees. It has recently dispensed with this business to Scottish Widows leaving it with a legacy of lacklustre workplace arrangements set up by Eagle Star and occasionally – Allied Dunbar.

Zurich is neither dedicated to pensions legacy (see Phoenix and ReAssure) nor actively marketing its services. The job of the IGC is particularly important in keeping pensions relevant to an organisation more interested in other financial services.

This report shows that the IGC feels it is up to the task.


The right tone of voice

The work of Laurie Edmans in listening to Zurich’s savers and addressing their issues, continues under Anna Bradley. Indeed Laurie remains on the Committee.

The report reads, as other successful reports have done, like a newsletter. But it is a stern report which makes no friend of Zurich, it keeps a proper distance. In the light of some of the issues it has  with its provider, this is no bad thing.

There is a precision in the language that makes for short sentences and clear statements that people can understand. Knowing Anna Bradley a little, I suspect that this is from her own pen.

I really enjoyed reading the report and give it a green for its tone of voice


Value for Money Assessment

The criteria chosen to assess value for money are not the criteria I would have chosen. The problem stems from the early days of the IGC when the answers received on “what matters” may have been distorted by some odd framing. Here is the assessment framework

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The assessment for the modern book is similar – though service levels are assessed lower (something noted in the Scottish Widows report – which analysed the same issue).

The modern book scores a green on Zurich’s competitor comparison while the old book (which need not compete) is neither good nor bad.

In both the modern and the illustrated older book, members are not being properly engaged or supported.

My worry is that the value for money assessment is overly reliant on performance against industry benchmarks rather than the reasonable expectations of savers.

The difficulty with benchmarking is highlighted by the report

It has been more difficult to come to firm conclusions on whether Zurich is reasonably in line with the rest of the market for older-style pensions. We had hoped to have industry benchmarking data available to use for this report. However, discussions between pension providers have been slowed down because of the very broad range of older-style pensions.

The one thing that older style pensions have in common is that they all produce similar outcomes – typically a capital sum based on money in, investment performance (net of charges) and time invested.

Zurich may be “compliant” , “efficient” and “competitive” with others, but these are values that make the pension book valuable to shareholders. These aren’t relevant measures for savers who are interested in good outcomes.

Neither its assessment of modern or older pensions suggests that Zurich is really providing value for money right now and – despite introducing the “green star” for “going beyond”, the IGC finds no opportunity to use it.

The IGC is not pulling its punches in its assessment and that is proper.

But I am not convinced that the Zurich approach properly focusses and measure good outcomes, nor am I sure that Zurich’s legacy book is giving many members good outcomes. So I am giving this report an amber for it’s value for money assessment. 


Is the statement showing the IGC as effective?

While Zurich regarded workplace pensions as what they did, the IGC was extremely relevant. The danger is that it now becomes less relevant and the years ahead are going to be more challenging for the IGC.

Bradley is showing she takes her role very seriously and I have confidence that she will keep UK Zurich’s attention, at least while it is being run by Jim Sykes. The worry is that if the UK management changes, the task will become more difficult.

So the decision of the IGC to focus on the efficiency of the older pension books is sensible.

During the year we have agreed five broad types of indicator that we think are important for this principle:

(1) Profitability;

(2) Direct salary costs;

(3) Direct servicing costs;

(4) Indirect costs;

(5) Investment in technology and systems.

This is the first time I have seen an IGC acting as a management consultant to the provider. It suggests that the IGC recognises that the biggest risk to savers is that they are abandoned by a shareholder who not only deems the IGC irrelevant – but equally policyholder outcomes.

While I don’t think that Zurich’s efficiency should form part of the VFM assessment, I do think the IGC can be most effectively employed providing help to Zurich on how to manage its legacy business for the good of its savers.

On a less positive note, the report does not properly address concerns about the true cost of Zurich funds, referring those interested to a link which takes us to another link which takes us to big spreadsheet in tiny fonts which is frankly a world away from engaging

I don’t get the impression that the IGC is bothered. It should be. While it has a limited resource, it needs to get information presented to it better and to present the information to savers better than this.

The IGC reviewed transaction cost data provided by Zurich for all funds in July 2018. We noted some significant differences between funds and challenged Zurich on the way they would use this data to better assess these costs to the benefit of members…. the IGC is satisfied with Zurich’s progress in relation to transaction costs.

I prefer the statement

The IGC specifically encouraged Zurich to focus on two areas this year: Transaction costs and Environmental, Social and Governance (ESG) Policy

More needs to be done by both Zurich and its IGC on these important aspects of Value and Money.

Despite being weak on its analysis of outcomes , of investments and investment costs, I see the Zurich IGC as an effective champion of its savers interests and give it a green


In conclusion

This is a punchy, aggressive report which I like. I think the IGC needs to be more outcomes focussed and review the components of its VFM assessment. It needs to be more focussed too on what is going on within the fund range managed by Zurich (see immediately above).

The report could also do with a bit of smartening up, the stock images are too big, the tables too small and overall production values aren’t what I’d expect from a wealthy insurer.

But if we get an effective IGC in 2019-20, as I suspect we will – these will be minor criticisms. The big task for the IGC is to keep pensions relevant, not just to savers, but to Zurich.

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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