Making Your Choice

How Clare Spottiswoode and her team have carried out the work

Clare Spottiswoode CBE has been supported by Dr Eileen Marshall CBE, an eminent economist, legal advisers, actuarial advisers and economic modellers. She has also been helped by Sir Alan Budd, Sir Bryan Carsberg and Mr Bill Knight, all distingushed individuals in their professions.

She spent several months before her appointment in November 2006 learning about the industry from independent practitioners and experts.

Her legal team negotiated her terms of reference, and briefed her and her team about the law governing with-profits. The FSA also briefed her on the key issues in a reattribution from its perspective.

The policyholder advocate met a very wide range of people and organisations with an interest in the industry. In particular she sought the views of policyholders through roadshows and a consultation exercise.

Others consulted include the economic secretary to the Treasury, the chairman and the chief executive of the FSA, the chairman and members of the House of Commons Treasury Committee, the chairman and members of the FSA Consumer panel, Which? and the Association of Independent Financial Advisers.

A key part of the work has been to work out, on the basis of a wide range of possible future economic situations, how much of the inherited estate might be distributed over the lifetimes of their policies to current policyholders under current FSA rules. It is your entitlement to these possible future special distributions that you are being asked to give up in return for a cash payment now.

A great deal of work has taken place on a very wide range of possible economic outcomes up to 2031. The policyholder advocate’s economic models have used Aviva data. The results from these models enable her to decide whether she can recommend the offer to policyholders. The work is based on assumptions about economic conditions far into the future which are by their nature uncertain. Following the market turbulence that began in autumn 2008 the policyholder advocate’s team has been engaged in discussing the new offer and the way it has been structured. The team has also conducted further economic analysis to assist the policyholder advocate in offering guidance to policyholders about the benefits of the offer.

The proposed reattribution has been designed so that those who decide not to accept the offer are properly protected.

As part of this process the policyholder advocate has challenged the FSA rules on with-profits because she believes that some of them unfairly favour shareholders over policyholders. The FSA issued a consultation paper which proposed no longer allowing the inherited estate to be used to pay the costs of compensation and redress in mis-selling cases. (At the time of writing the result of the consultation is not known.) But otherwise the FSA rules remain essentially unchanged despite our challenge. These matters are set out in detail in the main report. The policyholder advocate’s letters and FSA responses can also be found on the website www.policyholderdvocate.org.