title – arial bold 35 - actuaries institute 8e desoisa.pdf · ioaa paper on no-disadvantage test...
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Product Rationalisation
Rob DesoisaConvener of the Product
Rationalisation Task Force
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Context• Since the 1980s there has been a significant increase in the
number of legacy products closed to new clients
• It is estimated that there are approximately 6,000 financial products offered by the wealth management and protection industries. Of these over 1/3 are legacy products
• Legacy products cost $500 million each year to manage
• There is a case for legislation to simplify the rationalisation process
• Increased powers for providers should be balanced with adequate consumer safeguards including a “no disadvantage test”
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ContentsHow have we got here?
What’s the big deal?
Where are we going?
What have we said?
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Recent historyBanks review
H2 2005 H2 2006H1 2006 H1 2007
IFSA position paper
IFSA RIS
H2 2007 H1 2008 H2 2008 H2 2009
Government agrees to consult
IoAA principles paper
Expert Panel
Treasury Issues Paper
Industry submissions
IoAA paper on no-disadvantage
test
Treasury Consultation
Paper ?
Consultation period
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ContentsHow have we got here?
What’s the big deal?
Where are we going?
What have we said?
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Legacy products are a burden• Legacy products cost $500 million each
year to manage • Survey* responses suggest that
rationalisation could reduce annual costs by $100 million
• Nearly one third of the industry has at least 60% of FUM in legacy products
* Ernst & Young 2008 product rationalisation survey
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Legacy products caused by change in consumer demand
Source: Ernst & Young 2008 product rationalisation survey
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Rationalisation is about improving customer service
Source: Ernst & Young 2008 product rationalisation survey
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So, why aren’t we able to rationalise today?
Source: Ernst & Young 2008 product rationalisation survey
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Consumer protections
Power corrupts, absolute power corrupts absolutely
Lord Acton 1887
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ContentsHow have we got here?
What’s the big deal?
Where are we going?
What have we said?
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Legislation update• Consultation paper covering:
– Life Insurance and MIS– No-disadvantage test– Legacy product test– Role of the regulator– Tax neutrality for members
• When?
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Industry activity• Only 29% of respondents had started
large scale rationalisation• Uncertainty around legislative reform has
led many to hold off on rationalisation• Rationalisation options have become more
conservative• Planned activity has been reduced
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ContentsHow have we got here?
What’s the big deal?
Where are we going?
What have we said?
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Recap of the principles• Consistency of approach• Consumer safeguards• Fairness test• Simple• Practical• Transparent• Tax neutral• Facilitate rationalisation• Adds certainty
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Applying the principles• No disadvantage test
– Major sub group– No need for fact finds
• Replication of benefits not required• Consumer’s right to complain• Right to compensation if found to have
suffered
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Fair protection• No individual consumer is
adversely affected by the rationalisation in “normal circumstances”
• Include monetary compensation • Grouping of benefits• Does not mean everybody
shares equally• Application of judgement
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Valuing the benefitsMinimum of accrued value
Accrual of future benefits
Impact of future events
Reasonable benefit expectations
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Discretions• Reasonably foreseeable• Clear basis for their application• Documentary evidence required
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Offsetting tangible and intangible benefits
Non-contractual intangible
TangibleContingent
tangibleContractual
intangible
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Materiality• Reasonable steps should be taken to
avoid adverse impacts. • It is acceptable to have an immaterial
adverse impact• Materiality should not, by itself, be used to
avoid the no disadvantage test.
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Thank you