Over decades, the UK’s life and Pensions sector has played a significant role in shaping the nation’s economy by providing critical retirement savings to the general public and protecting companies with much-needed commercial aid. However, much like the financial services industry in general, the past few years have been accompanied by regulatory, socio-economic, and technological disruptions that have resulted in major changes, such as the possibility of a hard Brexit and the subsequent exit from the European Economic Area.
From traditionally profitable business lines such as personal annuities facing major shrinkage to changing demographics and customer expectations that call for continuous product innovation– the overall business environment in the sector remains turbulent. Along with these challenges, the oncoming impact, of what can potentially be a hard Brexit, is just one among the many reasons UK-based insurance firms have to consider reorganizing their operations and transferring their lines of business, especially once they leave the European Economic Area.
In the UK, the transfer of any existing insurance business line is subject to a stringent legal procedure named as the Part VII transfer. This section allows for a court-sanctioned legal transfer of some or all the policies of a company to another and is governed by part VII of the Financial Services and Markets Act 2000 (FSMA), with supplementary guidance laid down in SUP 18 of the FCA handbook.
Under the Part VII transfer scheme, every insurer needs to seek court approval for a transfer request and policy holders have the right to object to the Prudential Regulation Authority (PRA), Financial Conduct Authority (FCA), and the court if they think that the transfer of policies could adversely affect them. Considering the opportunity that this provides in the fair transfer of business, Part VII transfers have emerged as one of the critical elements in the Brexit restructuring toolkit, enabling organizations to transfer business lines to new or existing entities in regions outside the UK, with some of them in the European Economic Area.
Part VII Transfer– An Overview amid Brexit
After an insurer decides to proceed with a Part VII transfer, it needs to spend the initial phase in close consultation with the FCA. The typical Part VII transfer process can take anywhere from six months to two years and entails the following steps:
- Preparation of all legal documents in consultation and planning with the regulators
- Review of the transfer / scheme document by an approved independent expert and submission of the expert report and transfer documents to the UK court
- Post-approval communication with policy holders and others affected by the transfer scheme
- Evidence submission in court about policy holder statement publication as a part of the final court hearing
- Initiation of transfer protocol
The Challenges Involved
The legal requirements for businesses as laid down by Part VII transfers can be broadly divided into two steps:
- Manage the business planning, adherence to regulatory and compliance requirements, and any other associated legal work
- Ensure all impacted policy holders are contacted, their queries and concerns are addressed, and adequate documentation is maintained to submit as evidence in the final court hearing
Besides the stringent legal considerations around the transfer that businesses need to focus on, there are also some key challenges associated with the policy holder communication process which can make or break the deal eventually. Given this consideration, it is extremely critical for insurers to maintain constant communication with regulators and policy holders to ensure that the process is compliant and that the customers’ interest is prioritised and their concerns addressed immediately.
During the transfer, the regulators primarily focus on ensuring that customers aren’t adversely impacted by the shift and that every policyholder has adequate information on the consequences. To this end, insurers also need to perform a thorough impact assessment to determine customer outcomes, the results of which need to be communicated to the policyholders. Besides advertising publicly, insurers must also communicate with their affected stakeholders on an individual basis, highlighting the rationale behind the potential transfer and its impact.
To facilitate successful and seamless policyholder communication, insurers need to have a well-thought out and comprehensive plan in place which allows them to reach out to potentially millions of customers. Concurrently, they also need to be able to create a response management centre that is capable of addressing any incoming queries regarding the same. This process requires rapid mobilization of resources for a short period of time. Unfortunately, most organizations are not equipped to execute this short-term activity on their own and need to partner with third parties which can manage this process on their behalf.
To facilitate successful and seamless policyholder communication, insurers need to have a well-thought out and comprehensive plan in place which allows them to reach out to potentially millions of customers.
How can HCL help?
HCL, with its extensive experience in the life and pensions sector, can work with insurers and make sure that their requirement of reaching out to the customers in the event of a transfer is handled professionally and efficiently. We recognize the importance of giving every customer the opportunity to ask questions and we design a response centre that is specifically tailored to assure that customer queries are answered.
We are also aware that response rates can be unpredictable and plan accordingly to ensure maximum flexibility and scalability so that changing response rates don’t result in reduced service quality at minimal costs. With our ecosystem of partners, we are experienced in managing all related data processing, and customer mailing requirements to enable proper and court submissions. In short, if you have Part VII policyholder communication on your next agenda, HCL can help you manage the end-to-end customer mailing and response handling with its unique solution.
For more information, please contact us.