The bulk annuity market continues to grow, with hundreds of pension schemes securing members’ benefits through buy-in transactions each year. For trustees, the transaction is rightly assessed against demanding financial, legal and covenant criteria. But, as set out in our previous two articles, the quality of the service members will receive also deserves close attention. After all, the insurer will become the long-term provider of member pensions for the rest of their lives.
Given the obligations placed on insurers under the current Consumer Duty regime, trustees might reasonably assume that consistent high levels of member service are assured post buy-out. In practice however, it can be difficult to assess how insurers perform once a transaction has completed, and to compare performance across the market.
Member Experience Matters Long After the Transaction Completes
Whilst some insurers are investing heavily in member services, insurers can face the same challenges as pension schemes and experience shows there are bumps in the road. For example, there are instances of members experiencing significant delays in receiving benefit quotations from their buy-out insurer, shortly after becoming a policyholder, while other new buy-out policyholders have had pension increases applied late or incorrectly. These issues may currently affect only a minority of members, but the impact on the individual is material and as the number of buy-out policyholders continues to grow, such issues could impact many more members. In a market of increasing demand and a need for insurers to innovate and differentiate, we would expect this area to continue to benefit from investment and improvement. There is perhaps a longer-term question mark over the continuous investment and member service once the market reaches maturity and insurers are managing a shrinking balance sheet and reducing population.
For trustees selecting an insurer, the key question is not simply whether the insurer can complete the transaction successfully, it’s how they can objectively assess the quality of service members will receive over their lifetime.
The Challenge of Comparing Insurers
The challenge is that member experience is often difficult to compare between insurers. Providers vary considerably in scale, maturity and operating model. Some administer large, established populations of buy-out policyholders, while others currently serve much smaller populations that are growing rapidly. Some deliver member services in-house, while others rely on third party administrators. Insurers have their own USPs – technology, IFA service, in person events, online GP access to name a few - that trustees and members will value in different ways.
These differences are precisely why transparent, comparable reporting matters – and why its absence is a problem.
Detailed due diligence from advisers that understand the insurers and know how they perform is valuable, but even then, comparisons can be difficult. Trustees should not need to rely on provider presentations or broad assurances around the importance of customer service. It should be possible to assess objective evidence of how an insurer is currently servicing its policyholders.
A minimum disclosure standard
Insurers already collect a wealth of operational and customer service data, and indeed already report lots of this information to the FCA as part of Consumer Duty requirements and share it with consultancies on a regular basis. The issue is not whether this information exists, but whether it is published openly and consistently. Publishing a standardised set of metrics for buy-out policyholders would provide trustees with meaningful insight into the member experience being delivered.
At a minimum, we are asking BPA insurers to publish the following information for their buy-out populations annually:
Importantly, this information should be reported specifically for buy-out policyholders, rather than being bundled together with other lines of business. Trustees need a clear view of the service being provided to the members whose benefits they are entrusting to an insurer.
A Call to Action
The aim is not to create a burdensome new reporting regime or ask all insurers to operate in the same way. Transparency would benefit everyone. Trustees would be better equipped to assess insurers when selecting a provider. Members would gain confidence that their interests remain at the heart of decision-making. And insurers delivering exceptional service would receive the recognition they deserve.
Most importantly, transparent reporting would create a lasting incentive for insurers to maintain and improve standards long after a transaction has completed.
LawDebenture and LCP plan to work with the insurers and other interested parties to drive this initiative forward, to support all trustees in insurer selection decisions.
Our call to action is simple: every BPA insurer should publish an annual, consistent set of member experience and service metrics for its buy-out policyholders. By making performance visible and comparable, the market can encourage informed decision-making, drive continuous improvement and help ensure that excellent member service remains a priority throughout the lifetime of every policyholder.
If insurers expect trustees to trust them with member pensions for life, trustees should be able to see clear evidence of the service those members will receive. A buy-out should secure more than the promise of a pension. It should secure a good experience of receiving it.
Read the previous articles in this series: How can we safeguard good member experience long after a buy-out? and Beyond Buy-Out: Member Experience, Consumer Duty and Trustee Comfort authored by LawDeb's Lynne Rawcliffe, LCPs Katie North-Walker and Myles Pink and Claire Southern at Hogan Lovells Cadwalader.
This is the latest article in a series from LawDeb, LCP and Hogan Lovells Cadwalader. This article was authored by Lynne Rawcliffe, Trustee Director and Head of the Endgame Solutions Working Group at LawDeb, LCPs Katie North-Walker and Myles Pink and Claire Southern, Corporate and Finance Partner at Hogan Lovells Cadwalader.