"PriceWalking": a failure that happened on the IFoA's watch

That's a scandal in the same league or higher than Equitable Life. IFoA response so far has been wholly inadequate. Not fit for purpose. Public badly let down.

 

I agree that the IFoA's failure to explain what went wrong during the many years of #loyaltypenalty #pricewalking, whether it will do anything to help the overcharged policyholders get compensation, and how it proposes to stop anything similar in future, is very poor.
It seems clear to me that this was a failure of self regulation. If you think that the current self regulation position should be allowed to continue, despite this, then please comment asap on https://www.reddit.com/r/Actuary_news/comments/ogctoa/should_self_regulation_of_actuaries_in_the_uk/. (The consultation on the regulation of actuaries ends tonight, I think at 2345 BST).

 

Since the IFoA is failing to live up to its promise to act in the public interest, it falls to the public to do its job for it #DoingTheIFoAsJobForIt.

If you want to do the right thing by those policyholders who were overcharged by home and motor insurers, you can play a part in redeeming the reputation of IFoA actuaries (including the many who were not involved in this scandal, but will be tainted by association if they turn a blind eye to this) by helping them get compensation. See
https://www.reddit.com/r/Actuary_news/comments/ohibs7/doingtheifoasjobforit_insurers_involved_in/

 

“He auto-renews, I imagine, because he's 94, he's very hard of hearing, he can't use the telephone Loyal broadband, mortgage and insurance customers pay over £4 billion each year for not switching provider Often, it's people like Ray's father who pay this #LoyaltyPenalty".

From Radio 4's You and Yours on 28 May 2021.
If you are an actuary working for an insurance company that you know has been taking advantage of #loyaltypenalty (and hence of older policyholders like the one mentioned above - a retired accountant, who trusted insurance companies but on learning that he was being charged £900 a year as compared to £200 a year), then I think you *KNOW* what you should do under the Actuaries' Code and Treating Customers Fairly.

 

Paul Lewis (of BBC Money Box) earlier today: "Lloyds lied to millions of customers about insurance prices and 87% of them believed it and renewed their policies. Fined £90m. Just an overhead on £1.2bn profits in 2020" (https://twitter.com/paullewismoney/status/1415552752869068802?s=20).

How many actuaries were involved in reviewing the communications Lloyds issued to its customers? Were meetings held to effectively decide "what average percentage increase do we think we can get away with for loyal customers over the next 5 years?". Who signed off on the internal model assumptions for #pricewalking increases?

Which actuaries signed off on the internal model assumptions for #pricewalking #loyaltypenalty increases? The IFoA has a Royal Charter which requires it to act in the public interest. What is it going to do to help policyholders get compensation? If the answer is nothing, does it even deserve to continue to exist?

 

After more than 6 weeks, I have yet to see any credible defence against the allegation that #loyaltypenalty #pricewalking breaches Treating Customers Fairly, and several principles of the Actuaries' Code (at least Integrity, Impartiality, Speaking Up and Communications). If you or anyone else can think of such a defence, then you would be doing iFoA members (and by association other actuaries) a favour.

In the absence of such a defence, it follows logically that *any* IFoA member working for the insurers which engaged in #loyaltypenalty is vulnerable to having to answer allegations of misconduct. It seems to me that in fairness the most senior actuaries should bear the most significant responsibility, and so at a minimum that would imply to me Chief Actuaries and arguably the most senior actuaries at each company involved in pricing and marketing. Since those actuaries will have looked to the IFoA's General Insurance Board for guidance, and the latter must have been aware of the widespread use of #loyaltypenalty, in fairness the members of that Board also bear significant responsibility for #loyaltypenalty in my view.

Other professionals may well have broken their own codes of conduct, as well as for claiming (incorrectly in my view) that the insurance companies were complying with Treating Customers Fairly. That is up to their conscience and their professional bodies: we as actuaries have to get our own house in order. Or else (as I have said elsewhere on this forum), the IFoA's claim to act in the public interest will be shown to be a sham, and the public will see this. If members on here continue to stay silent on this, Speaking Up will also be seen to be a sham, won't it?

 

The sanctions available to Adjudication Panels include no sanction, a Reprimand and/or a Fine up to £7,500.
The sanctions available to a Disciplinary Tribunal Panel (which is not a sanction itself, but a means of taking a decision as to whether misconduct occurred) are: no sanction, a Reprimand and/or a Fine (which can exceed £7,500 but by how much I don't think is clear at present) and/or a period of Expulsion (for current members) or Exclusion (for former members).

Any sanction would be decided by the relevant Adjudication or Disciplinary Tribunal Panel. The purpose of sanctions is to protect the public and the reputation of actuaries generally. If you were on such a panel (or on the equivalent for a disciplinary process taken over by the FRC, which is what ought to happen in these cases, because significant public interest is involved), and given the following:
- the public was misled (that Treating Customers Fairly was being followed fully) so there is an element of dishonesty and hence a significant lack of integrity
-the public lost out financially (collectively to several £billion pounds)
-this has been going on over many years
- the actuaries involved benefitted financially from the overcharging of the public
-there was a degree of collusion involved (because no one seems to have followed Speak Up)
what level of sanction would *you* decide upon if you were a member of such a Panel?
What level of sanction do you think the public would expect to deter a repeat of this scandal?

 

If the Institute and Faculty of Actuaries were doing its job properly, namely acting in the public interest (as per its Royal Charter duty), here are some questions that it should be helping to answer. As it still remains silent, it falls to others to do the work. See
https://www.reddit.com/r/Actuary_news/comments/oqnw4k/doingtheifoasjobforit_questions_that_need/

 

The IFoA has acted quite severely towards students it suspects of plagiarism (which was not clearly defined since they changed the guidance shortly before the exams). Yet at the same time it has done NOTHING so far to challenge or investigate the many qualified actuaries who contributed to actual harm ("eye watering price increases", "Lloyds Bank General Insurance Limited lied to customers" and was fined £90 million) via loyal (often older or vulnerable) policyholders being overcharged for many years under #loyaltypenalty #pricewalking. The IFoA is treating students far more harshly than senior actuaries who caused actual harm, and probably benefited financially from doing so, isn't it? See https://www.reddit.com/r/Actuary_news/comments/oqnw4k/doingtheifoasjobforit_questions_that_need/ for details.

 

Lloyds were fined because they were going around telling customers that their renewal prices were "competitive" when they clearly were not. So they were fined for mis-selling

They were not fined for the act of price walking, which was legal, and still is legal until the regs banning it come into force next year.

I believe customers have been treated fairly with regards to price walking - it is no big secret that price walking was happening, and customers were always able to compare their renewal premiums vs other companies. The difficulty was that there's always an inertia effect to moving providers, which resulted in loyal customers paying more than switchers.

I hazard a guess the more awkward bits are with health insurance and moratorium on certain conditions if you move providers (I.e you can't switch cause new providers won't cover certain conditions that would be covered by the current provider). Those people were probably more so trapped in their policy, but thats still the case even after they ban price walking

Clearly there's been enough hoohah about it that it's been decided that it should be banned but that doesn't mean that those carrying it out previously were wrong or dishonest in their approach to business.

Pooling risk fundamentally means that there will always l be "winners" and "losers" based in how much someone is paying in vs claims made. Price walking was just one way of pooling risk, whilst trying to be competitive

No claims discount is also another way of pooling risk whilst being competitive - should that be removed too as it disadvantages those early in their policy or who have claimed? Should we just remove all perks and make every insurance policy exactly the same?

 

You are implying that the law has to be broken before any behaviour becomes professional misconduct. Nowhere in the Actuaries' Code or in the Disciplinary Scheme rules does it say that, and a study of published determinations shows that in over 90% of cases where misconduct was found, no laws had been broken.

Can you explain how Price Walking/Loyalty Penalty complies with Treating Customers Fairly, and with the Actuaries' Code Integrity, Impartiality, Speaking Up and Communication principles?

It is notable that no named actuary (only anonymous ones) has so far, despite more than 8 weeks of challenges on this, been willing to defend price walking/loyalty penalty publicly. Neither has the IFoA. I suspect this is because they realise the price walking/loyalty penalty is toxic, both for any actuary in particular, and for the IFoA's brand too.

I would agree that Lloyds Bank General Insurance Limited seems to be the worst example so far that I have seen. In order to comply with the Actuaries' Code 5.2, any actuaries who work/worked there with involvement in loyalty penalty/price walking should report themselves asap to the IFoA (and others there who are aware of it should report fellow IFoA members who they know were involved) , should they not? (The same is true of course for other companies, but as I say, Lloyds Bank GI Ltd looks to be the most serious case so far).

 

Time is running out (if it hasn't already) for any IFoA member who is or was involved with #loyaltypenalty / #pricewalking at insurance companies to Speak Up about it. I think (especially for those involved at Lloyds Bank General Insurance Limited) there is a clear case to answer with regard to breaching TCF, and many paragraphs of the Actuaries' Code, including all those of the Speaking Up section.

 

If any actuary involved is in any doubt about the seriousness of the situation, they should take a look at https://www.actuaries.org.uk/system...linary Tribunal Determination- Mr Theaker.pdf. This was a case where the Panel agreed that no harm was caused to the public and that the Practising Certificate wasn't needed if the Chief Actuary was not an IFoA member. Yet he was fined and excluded for 3 years. Are the sanctions not likely to be significantly higher for a situation where the public (including often older or more vulnerable policyholders) suffered financial harm, and where there was an element of breach of the trust that the public is entitled to have that actuaries who say they follow Treating Customers Fairly actually treated some customers unfairly? The Lloyds Bank General Insurance Limited situation is even worse. Plus there is the question of compensation for those policyholders treated unfairly.

In my view, it is in their own interests (to reduce the number of charges, and in the hope of this being treated as significant mitigating factors) for actuaries involved to contact the IFoA as soon as possible, say that they have knowledge of this problem and offer full cooperation into any investigation.

 

Formal complaint sent yesterday to the IFoA:
https://improveifoa.wordpress.com/2...rs-involved-in-loyalty-penalty-price-walking/

Abstract
The use of loyalty penalty / price walking over many years appears to have been a gross breach of trust (violating Treating Customers Fairly and very many parts of the Actuaries’ Code) and is arguably the biggest scandal in the UK insurance industry in decades: larger than the failure of Equitable Life, and potentially as bad as the pensions mis-selling scandal. Millions of policyholders (many elderly or otherwise vulnerable) look to have been overcharged by at least £5 billion in total. The conduct of actuaries with significant involvement should be investigated. In my view the IFoA should also help organise compensation for policyholders to whom harm was done.

 

The IFoA's response to my complaint can be seen at:

https://improveifoa.wordpress.com/2...es-involved-in-loyalty-penalty-price-walking/

 

#DoingTheIFoAsJobForIt

FOI request made to Bank of England to get the names of Chief Actuaries of general insurance companies:

https://www.whatdotheyknow.com/request/please_supply_lists_of_persons_h

Freedom of Information request submitted to the Financial Conduct Authority to identify general insurance companies involved in #pricewalking / #loyaltypenalty:

https://www.whatdotheyknow.com/request/please_supply_lists_of_general_i

 

As mentioned on https://www.reddit.com/r/Actuary_ne...ior_actuaries_at_loyaltypenalty_pricewalking/

If any actuary (senior or not) from an insurance company accused by policyholders of price walking wants to contact me privately (and if necessary in confidence or on an anonymous basis) to explain why they believe that price walking did not breach Treating Customers Fairly or the Actuaries' Code, then please do so (either via private message on here [Reddit], or email) before 1800 UTC (i.e. current UK time) on Tuesday 8 March.

 

Initial batch of complaints now filed with IFoA. See https://www.reddit.com/r/Actuary_ne...ial_batch_of_formal_complaints_against_named/.

 

Very interesting reading. My first thought is that what constitutes “fair” is not set in stone: it’s a subjective or relative term, not an absolute one. Does the FCA actually define the term “fair” in the context of the six TCF outcomes? Similarly, I don’t see that the word “fair” is defined explicitly when used in the Actuaries Code paragraph 3.3, whilst paragraph 3.5 mentions, “It is also worth remembering that the same behaviour may have a different impact on different people; what one person may find offensive may not have any effect on another. ”

If my neighbour presents the same level of risk as me to an insurer for a particular product but earns much less than me, is it “fair” that he is still charged the same premium as me even though it is less affordable to him and it therefore leaves him with less remaining disposable income? His well-being is more impacted by paying that premium than me. Who gets to draw the line on what is called “fair” or not? And fair to whom? It’s a relative term, and not black and white.

 

Thanks for the suggestion that this might be a line of defence that a respondent actuary might take. Here's my immediate reaction:

An unusual line of argument, reminiscent of Bill Clinton's "That depends on what the meaning of 'is' is." during his impeachment trial. Did the price walking actuaries communicate clearly to their policyholders and the regulators that they were using a non standard definition of "fair"? Did the price walking practices really charge higher premiums to those with higher incomes, or on the contrary (as Citizens Advice and others complained) often charge higher premiums to older or otherwise vulnerable policyholders? The FRC or IFoA Disciplinary Tribunal Panel are likely to have regard to the meaning of "fair" that an ordinary, reasonable member of the public would expect. In the absence of clear communications to policyholders and regulators that they were relying on a different meaning, I think this line of defence comes across as contrived and risks undermining the credibility of any respondent who uses this.

 

You asked, "did the price walking actuaries communicate clearly to their policyholders and the regulators that they were using a non standard definition of "fair"?"

Yet we haven't established that there is a single standard definition of usage. Again - it is relative and depends who you are and who you ask. If a member of the public who used to shop around for cheaper policies every year thinks it's not "fair" that they can no longer find as good discounts because of the change, is he/she no longer counted as ordinary or reasonable, because there are others with opposing views?