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Consumer Understanding Cars are complex. Consumers dont need to know the inner workings, just some basic information to ensure it meets their needs, along with the comfort that it has a regular MOT / Service from a professional. 16 May 2018 1 Value of with-profits for consumers Working party update Tim Bateman (Chair), and Ben Stroud 16 May 2018

Working party members: Chair: Tim Bateman (Mazars) Deputy Chair: Jonathan Welsh (Wesleyan) Secretary: Ben Stroud (ReAssure) Kris Overlunde (PwC) Rosalind Rossouw (Sun Life Financial of Canada) Ross Thompson (Standard Life) Catherine Thorn (Prudential) Catherine Zhang (Abbey Life) Andrew Fraser (Standard Life) till May 2018 Rebecca MacDonald (PwC) till July 2017 16 May 2018 3 Agenda The value of with-profits for consumers working party. Scope: Do consumers understand the value of their with-profits policies? Background & Survey Methodology Tim Bateman Mazars Customer Engagement &

Sentiment Ben Stroud ReAssure Conclusion & Next Steps 16 May 2018 Tim Bateman Mazars 4 Background 16 May 2018 With-profits funds continue to make negative headlines... Savers should plot their escape from zombie funds The Times 9 July 2016 Help! Why has my 'with

profits' pension fund shrunk 11% in two years as stocks hit record highs? Endowment Scandal! The endowment scandal gets even worse: 70,000 face selling homes as plans expected to pay 110,000 are now worth just 24,000 Daily Mail 16 November 2017 www.thisismoney.co.uk 20 May 2015 Savers see with-profits pensions slashed by 87%: Thousands promised annual payments of 30,000 now set to receive just 3,700 www.thisismoney.co.uk 12 July 2016 16 May 2018 The Telegraph March 2014

6 With-profits funds have performed comparably to similar unit-linked funds... Single Premium Pensions 20 Year Return Comparison 16 May 2018 Source: Money Management surveys values typically as at 1st Jan 2016. 1 March 2015 where PRA returns have been used. 7 With-profits funds have performed comparably to similar unit-linked funds... Single Premium Pensions 20 Year Return Comparison ... But performance varies by fund And performance depends on customer expectation 16 May 2018

Source: Money Management surveys values typically as at 1st Jan 2016. 1 March 2015 where PRA returns have been used. 8 ... with-profits can have very different exposures Estate Distributions Business profits and losses Portfolio of underlying assets + Smoothing + Guarantees + MVRs With-profits Unit Linked

... These features do present communication challenges that are not present in other investment products 16 May 2018 9 Phase 1 Summary With-profits performance has been comparable to similar UL funds On average But it is highly variable, dependent upon the fund Information provided on benefit statements varies: Content Terminology There is little existing consumer-specific with-profits research 16 May 2018 10

All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 4,585 adults, of which 473 held a with-profits financial product. Fieldwork was undertaken between 2nd - 6th November 2017. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+). Survey Methodology 16 May 2018 Survey methodology Online survey carried out by YouGov Fieldwork was undertaken between 2nd 6th November 2017 Single/Multiple choice questions & open-ended questions 19 questions if has at least one financial product + another 16 questions if has a with-profits policy Final data is statistically weighted to the national profile, and split by categories, e.g. age, gender, social groups 16 May 2018 12 Survey Representative sample

Numbers of respondents: Total: At least one financial product: With-profits product: 16 May 2018 4,585 2,851 473 (17%) 13 Survey population With-profits financial product (sample size 473) Product Type Split 20.00% life 40.00% pension investment

bond 40.00% 16 May 2018 14 Survey population With-profits financial product (sample size 473) Age Split 2.75% 6.13% 8.03% 37.84% 18-24 25-34 35-44 17.34% 45-54 55-64

65+ 27.91% 16 May 2018 15 All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 4,585 adults, of which 473 held a with-profits financial product. Fieldwork was undertaken between 2nd - 6th November 2017. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+). Results Overview 16 May 2018 How much information do consumers want? All policyholders 10.94% 2.50% 23.03% 63.53%

16 May 2018 With-profits Higher orpolicyholders Lower 1.99% How about with-profits policyholders? I receive too much information 2.78% Is 22.62% the proportion who think the amount of information is about right Higher or Lower 72.61%

than for all financial customers? The amount of information is about right I receive too little information Don't know 17 How much information do consumers want? All policyholders With-profits policyholders 1.99% 10.94% 2.50% 22.62% I receive too

much information The amount of information is about right 2.78% 23.03% 63.53% 72.61% I receive too little information Don't know Higher ! 16 May 2018 18 What information do consumers want? Most appreciated information

All policyholders 80% With-profits policyholders 70% 60% 50% 40% 30% 20% 10% 0% C u e lu

a v nt e rr H ow e th ve in th en m st as

p ed m r fo er C h g an es in va l

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s m u i em r P pa id H ow y m ey n o

m is i d te s e nv With-profits policyholders want the difficult to provide information 16 May 2018 19 How often do/would consumers review their financial product? (with-profits policyholders) Review Frequency 45% Do consumers really intend

to review more frequently? 30% 15% 0% 6 hs t on m to 1 ar e y e or

m 16 May 2018 nt e qu e fr an h t 6 hs t on m ss e

l nt e qu e fr n a th 1 ar e y t n do er v

ne / ow n k currently would like to 20 All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 4,585 adults, of which 473 held a with-profits financial product. Fieldwork was undertaken between 2nd - 6th November 2017. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+). Customer Engagement 16 May 2018 Why with-profits? Customers were asked the reasons for choosing a with-profits product

15.95% 6.57% 50.60% Conscious Choice Advised No Choice Other 26.89% 16 May 2018 22 Why with-profits? Customers were asked the reasons for choosing a with-profits product Conscious Choice responses in more detail: 10.64%

16.11% 41.64% Best option available Met my investment objectives Wanted a particular provider I saw the product advertised 31.61% Customers appear to have been engaged with the product originally! 16 May 2018 23 Customer loyalty / apathy? Customers were asked how long they were likely to hold on to their withprofits product Any guesses how many would stay until/after maturity? 16 May 2018

24 Customer loyalty / apathy? Customers were asked how long they were likely to hold on to their withprofits product Any guesses how many would stay until/after maturity? 15.97% 4.15% At least until maturity Don't know Surrender early 79.88% Is this customer loyalty or apathy? 16 May 2018 25 Are customers engaged? Customers were asked what info they would like to receive in annual statements

0% 10% 20% 30% 40% 50% 60% 70% 80% Investment performance Current cash-in value Change in value Charges incurred Projected maturity value

How my money is invested Premiums paid Death benefits attached Any surrender penalties Risks How to improve the projected position Explanation of options/guarantees Value of any guarantees 16 May 2018 26 Are customers engaged? Customers were asked what info they would like to receive in annual statements 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Projected maturity v... How to improve the projected posi... 0% 10%

20% 30% 40% 50% 60% 70% Current cash-in value Explanation of options/guarantees Value of any guarantees Customers dont seem to want to know what they can do about it, or what risks and protections they should be aware of! 16 May 2018 27 Are customers engaged?

Customers were then asked what info they would like to receive when approaching maturity: 0% 10% 20% 30% 40% 50% 60% 70% Timel... Explanation of options available at matu... Explanation of options available... Charges for each of the opt...

53% want this information (cf 32% in annual statements) Procedures to take the opt... Examples of the journey from now to matu... Where to get ad... Suddenly customers become interested in what they can do about it But it could be too late. 16 May 2018 28 Customer understanding - Benefits Customers were asked what the benefits of having a with-profits product were: 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Potential for long term growth that keeps pace with price infla... Reliable growth with a safe invest... Tax effici... Shared investment fund, chance to invest in wide range of investm... Guaran... Shared investment fund with low cha... Less than 20% of WP customers see guarantees or smoothing as a benefit! Smoothed ret... O Don't ... Guarantees and smoothing are two of the main benefits of with-profits over other investment types. Are we so out of line with customers thinking? 16 May 2018 29

Customer understanding Value and Options Customers were asked if they understood how the cash-in value of their with-profits product could change and if they understood all of their options and guarantees 53% did not understand how their cash-in value could change 59% did not understand all of their options and guarantees What does this mean for customer communications? What more can we do to try and land the message and the important features of products? Understanding of the options available doesnt increase with age 16 May 2018 30

What do customers value about withprofits? Conscious purchase to hold till maturity Limited understanding of smoothing and guarantees Short term focus What more can we do to help increase customer engagement and understanding or help us improve communications? 16 May 2018 31 Customer Sentiment An alternative analysis 16 May 2018 Tool to look at customer sentiment Survey included freeform text responses What do you like or dislike about your annual statement?

Neural network used to measure sentiment Able to group responses into themes 16 May 2018 33 Customer sentiment in survey responses What do you like about your annual statement? (+1.11) [My provider] has done an excellent job for me with my SIP and I get full annual info from [my adviser] who provides my monthly income. (+1.10) Clear and concise; everything I need on one page. (-0.77) Nothing. Don't know enough (-0.76) No, waste of paper (-0.67) They are obliged to send them. Like is not a useful word in this context Overall sentiment +0.095

16 May 2018 34 Customer sentiment in survey responses What do you dislike or would change about your annual statement? (+0.45) Being jargon free; easier to understand (-1.62) Too long and complicated and does not explain anything relevant in plain English (-1.52) Waste of paper, for which I am paying. ??? Too lengthy; too wordy; too much legal waffle ; lay out very boring ; small font; incomprehensible explanations; poor definitions; too repetitive 16 May 2018 35 Customer sentiment in survey responses What do you dislike or would change about your annual statement? (+0.45) Being jargon free; easier to understand

(-1.62) Too long and complicated and does not explain anything relevant in plain English (-1.52) Waste of paper, for which I am paying. (-1.91) Too lengthy; too wordy; too much legal waffle ; lay out very boring ; small font; incomprehensible explanations; poor definitions; too repetitive Overall sentiment -0.096 16 May 2018 36 Digital fingerprint allows grouping of responses Grouping (clustering) does not rely on customers using identical language, or even spelling correctly! Example responses grouped together: Easy to understand 'Easy to understand; informative' 'Clear;concise;up to date' Value 'Clear about its overall value. 'Comparisons of value now against 1 year previously' 16 May 2018

37 Key themes important to customer Clarity Easy to understand Keeps me informed Value Available online No particular view 16 May 2018 38 Conclusion and next steps 16 May 2018 Summary and Conclusions 1 of 2 Returns are competitive, but we could do more to advertise With-profits can change over the lifecycle - ongoing engagement is important

Consumers want regular and detailed information increasingly as they near maturity Consumers believe they have a reasonable understanding of the information being provided... ... and better relative to holders of financial products generally. 16 May 2018 40 Summary and Conclusions 2 of 2 However, certain key issues are not well understood... ...and many will not actively manage their policy Clearer communication is key, but only one part of the solution. 16 May 2018 41 Next steps Second survey to gain deeper understanding of with-profits customers

Using sentiment analysis Inviting companies to participate To help inform best practice Please contact us if you have any further feedback or comments. 16 May 2018 42 Questions Comments Expressions of individual views by members of the Institute and Faculty of Actuaries and its staff are encouraged. The views expressed in this presentation are those of the presenter. 16 May 2018 43

Discussion Points What level of understanding do consumers need? Is providing more information helpful to consumers or does it simply add to the confusion? Is it the providers role to educate? Is greater tailoring of individual communications the way forward ? (is it achievable?) Is it important that a customer understands how a closed fund operates? 16 May 2018 44 Should you require any further information, please do not hesitate to contact: Chair: Tim Bateman (Mazars LLP) [email protected] Deputy Chair: Jonathan Welsh (Wesleyan) [email protected] Secretary: Ben Stroud (ReAssure) [email protected] Further working party details, including our Life Conference 2017 and CILA 2017 presentations can be found here: https://www.actuaries.org.uk/practice-areas/life/research-working-parties/value

-profits-consumers 16 May 2018 45 Contributors Our special thanks go out to the following contributors to Phase 1: Mazars KPMG Wesleyan Healthy Investment ReAssure Kingston Unity Standard Life Royal London NFU Mutual

AEGON Sun Life Financial of Canada Phoenix Life Aviva Legal & General LV= Scottish Widows Equitable Life ABI PwC MAS

16 May 2018 46

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