Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 40-59)

MR CHRIS DAYKIN, MR ANDREW YOUNG, MR JOHN TINER AND MR WILLIAM HEWITSON

WEDNESDAY 10 JULY 2002

  40.  So exactly how policyholders' interests are represented, either in old- or new-style `with profits' funds, is still to be decided, and your present view is that all the worries that you might have, or the questions you might have to ask of the manager of a `with profits' fund should be left entirely within the circle of hidden concerns?
  (Mr Tiner) The board have that responsibility; it is a fact that the board have those responsibilities, and they cannot deviate from those responsibilities. What they need to do is take advice from experts, actuaries, perhaps others as well, about the decisions they are taking; but we look to the board, with the one exception, which is the application of discretion, to make those decisions, and we think that is the right place for those decisions.

  41.  Do you agree with that, Mr Daykin, with the benefit of your experience in the problems that come with advice and warnings being entirely within a charmed circle and not publicly known?
  (Mr Daykin) No. I must admit, I have concerns that the FSA proposals will lead to significant consumer detriment; the perceived ill that the board is passing over responsibility to the Appointed Actuaries, in my view, is misconceived, because I think boards already use the Appointed Actuary in an appropriate way, if anything, they apply undue pressure to the Appointed Actuary, and the Appointed Actuary has to balance the interests of policyholders and shareholders. I think, placing the focus on the actuarial function advising the board swings the balance significantly away from the policyholders towards the shareholders, and I think it is vital that there should be an actuarial sign-off of the provisions which go into the accounts, and an assessment of the risk-based capital, and that there should be public certification by the actuary of the premium rates, and that the amount of surplus available for distribution should be certified by the actuary, and I think all of those appear to be being lost in the proposals.

  Mr Cousins: Thank you; most interesting, and no doubt we will return to these issues.

  Chairman: We will.

Mr Laws

  42.  Mr Daykin, could we come to the departmental targets, as reflected in your Spring 2002 Report. Of the key departmental targets, what proportion do you think you are meeting at the moment, and are you satisfied with the progress that you are making on them?
  (Mr Daykin) I think we are meeting all of them except the one in relation to the aggregate efficiency index, where the change of structure of the Department last year left us in a position where it was impossible to meet figures which had been planned under the old regime, before the transfer to the FSA; so we have now rebased that index, looking forward.

  43.  Are you saying that you are meeting the very first one, that is reported on page 12 of the document, which says: "Deliver timely and accurate actuarial advice to clients, including agreeing with clients within 6 months of the start of each financial year Service Level Agreements," because, if you read along the column, it implies that in both of the next two years, to March 2001 and March 2002, you have not actually met those targets?
  (Mr Daykin) I think the focus is on delivering timely and accurate actuarial advice to clients, and I think we have met that requirement. The putting in place of Service Level Agreements is something that we have been increasingly trying to do, but we need the clients to participate in that process, and if the clients do not want to put in place Service Level Agreements, or delay that, then it is not possible for us to do it without their involvement.

  44.  But you have not actually met that part of the target yet?
  (Mr Daykin) We are putting in place Service Level Agreements with all clients who are interested in having one.

  45.  How many do you reckon you have got in place so far, as a proportion of the total that you look for?
  (Mr Daykin) I have no idea, because so much of our work is on an ad hoc basis, which does not require a Service Level Agreement; but for the big clients we have Service Level Agreements.

  46.  Who are the ones that you are really having problems with?
  (Mr Daykin) I do not have that information available to me, at the moment.

  47.  Is there a particular type of client that you aim for?
  (Mr Daykin) I think I would say that clients outside the immediate Government circle are not particularly interested in having this sort of agreement, we have a different contractual relationship with them. The Service Level Agreement is more of a central Government thinking, and I think the large Government Departments, in principle, are interested in this, but, because of the complexity of our relationship with large Departments and many different parts of those Departments, it is quite difficult, in practice, to have such an agreement.

  48.  Do you think then that the target ought to be restated to reflect that these Service Level Agreements should only be in place with Government Departments and Agencies, rather than outside and beyond that?
  (Mr Daykin) Yes, I think it should focus on our relationship with central Government Departments. But these targets have all been restated in the Spending Review 2002 anyway.

  49.  And has this one been restated in your stance?
  (Mr Daykin) I believe so, yes.

  50.  It has been?
  (Mr Daykin) Yes.

  51.  Do you think, more broadly, that the targets that you have been set so far are actually relevant and achievable to the central tasks that you are doing, or do you find, to some extent, that they lead you down paths which are not perhaps as productive as might be the case if you were just setting the broad objectives that you would set from year to year?
  (Mr Daykin) I think that is true to an extent, because our principal focus is serving our customers, our clients, and so we are very much focused on delivering what our clients want and being responsive to that, and their needs change continuously; it is very difficult to embody in targets for three years ahead exactly what individual clients are going to need, and anyway we have something like 800 clients, so it would not be possible to encapsulate that within such a document. So we have tried to focus on targets which are relevant, like improving the quality of advice and raising the value which our customers place on our advice, as measured through the customer satisfaction questionnaire, which we think is very important, and get away from fairly arbitrary measurements of unit cost, or something like that, whereas actually what matters for us is that we generate good fee income and make sure that we meet our net resource requirements, our net cash requirements, and provide top quality service to our customers.

  52.  Do you regard some of these targets then as being somewhat arbitrary and unhelpful to your central purpose, in comparison with a situation where these targets were the alpha and omega of everything that you were trying to do?
  (Mr Daykin) Yes. In a way, I think they are a bit peripheral to the real task of meeting our customers' needs, issues like reducing the prompt payment of bills, and so on, where we are already right at the top of the list in terms of payment of bills, so having a target there is not terribly relevant. The question of writing off chargeable time is also, it is all part of the management of the client relationship as to how much you charge them; we do have some clients with whom we have fixed-price contracts, and so, again, that focus on that particular item does not really add to our management—

  53.  But are you worried that what is supposed to be, on the basis of the Government's intention, central to the delivery of better public services, which is having these types of targets, you consider to be somewhat peripheral, a bit peripheral, I think you said, to your main purposes?
  (Mr Daykin) I think we are in a very particular situation, as providers of professional advice to customers, and we are not running a public service, like most other Government Departments, and, therefore, our focus is on meeting the needs of those customers at the same time as meeting the financial targets which we are set by Parliament and the Treasury.

  54.  Can I clarify two small points, before finishing this section. The first one is that, on that first target that we just discussed, the first one listed on page 12, at the end, it also says that part of the target is delivering 90 per cent of the advice to the agreed timetable and cost, but there is not a commentary on that, next-door to it; have you succeeded in delivering 90 per cent of the advice to the agreed timetable and cost?
  (Mr Daykin) I think one of the issues there is actually being able to measure it when we have so many different pieces of advice. We are putting in place a new Management Information System, which will enable us to answer that question more effectively, but I believe that we are at about that level, in terms of what we achieve, but it is very difficult to measure it precisely.

  55.  Is that a diplomatic way of saying that you cannot be sure precisely whether you are meeting that target, or not?
  (Mr Daykin) The issue is adding up apples and pears, with all the different sorts of advice we give, and the way in which that advice is requested; and what we try to do is focus on delivering, for each customer, what they require within the timescale that they seek it.

  56.  One very last point then. On page 13, the last target that you have got is about reducing sickness absence in your Department, and you mention, under the aim for March 2003, that you are intending to bring in optional medical screening for staff; how will that actually work, that will be through the public sector, or through the private sector?
  (Mr Daykin) I think that we are exploring this as a sort of non-pay benefit which we can provide to our staff, which will be both an advantage to them and also, hopefully, will help in reducing sickness absence. We have not got the mechanism in place, but I think we envisage it being probably through a private healthcare screening process, but we are investigating what the options are.

  57.  Do you have any problems with the Government and the Treasury Regulations, in purchasing private medical care for these types of purposes?
  (Mr Daykin) We have not come across any yet, but we have not formulated a specific proposal.

Dr Palmer

  58.  Just a couple more points about the Targets and Goals section. We are now in July 2002, and, so far as I know, we still do not have the assessment of client satisfaction, compared with the baseline of April 2000; now what is the hold-up?
  (Mr Daykin) We do have; yes, we did carry out a client satisfaction survey, we were waiting to get some more information in, and we were also seeking to issue the questionnaire more widely, in fact, we are now just in the process of issuing the next one. We got a rather poorer response in the second year than the response we got in the first year, so we were concerned, and poorer in terms of the number of clients who were willing to reply, and so we were concerned that either we were not asking the questions, or they did not feel it was relevant to them. So we are trying to put in place a process which is more sensitive to what they want to tell us, something which will include not only an annual questionnaire but also a regular little mini questionnaire to clients, after completing a major job, so that we can just get their feedback. And we have also put in place a new client feedback function, somebody to liaise with clients and try to tease out of clients whether there are any issues that they want to bring to us.

  59.  In the first year, you got 66 per cent responding; what was it actually in the second year then?
  (Mr Daykin) I think it was about 40 per cent.


 
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