The ABI's quality mark project could lead to a greater consistency between with-profits and other un...
The ABI's quality mark project could lead to a greater consistency between with-profits and other unit-linked products. The SALTR committee has recommended that companies that wish to obtain the quality mark would have to agree to alter existing with-profits products to some degree and provide consumers with a detailed explanation of with-profits methodology.
In developing the standards for with-profits, the committee argued it was necessary to point out the essential differences between these types of policies and unit-linked products and then to communicate this clearly to consumers.
In terms of making the charging structure clearer, consultants hired by the ABI have recommended that market value adjustments (MVA) must only be used to cover falls in the value of the assets backing the fund not to pay for initial expenses as is sometimes the case today.
According to the report drafted by Tillinghast Towers Perrin, the lack of consistency in the meaning and use of MVAs make it difficult for a customers to properly compare products.
Another discrepancy the consultants have identified in examining with-profits products is the use of enhancements or special offers such as increased allocation rates.
The ABI document stated: "On occasion these special offers are not carried through to the asset share. The effect of this is that, although part of the policy which the policyholder sees, the nominal value of the units, is increased, the overall benefit is largely unchanged as the ultimate payout on those policies reflects the asset share to which no enhancement is applied."
The consultants suggested that unless a parallel enhancement is made to the asset share, special offers should be defined as unacceptable.
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