Examination of Witnesses (Questions 40-59)|
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.
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
(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
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
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
(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
(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,
(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
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.
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
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.