This week, the UK Government introduced the most fundamental reform to the pensions industry since the Old Age Pensions Act in 1908. For decades, workers reaching retirement age had one choice; an annuity or an annuity! For most, their pension plans were rolled into an annuity without an option of a ‘free-market’ choice. Although many believe them to be a safe haven, the annuity product has become tired, uncompetitive and, as reported in the Telegraph on Tuesday, the potential to be the next mis-selling scandal.
However, from now on, around 8 million of the UK population on a Defined Contribution pension have the additional choices of a cash drawdown and/or a flexible income as well as a choice of annuities.
Great! But is it?
With as many as 6.5m of these people simply not understanding their options today, the industry is being disrupted by political policy rather than market forces or technology innovation to shape the way insurance business is done. Worryingly, a poll for the Association of British Travel Agents (“ABTA”) reported that 20% of 55-75 years olds were considering taking the cash option with a further 37% of them considering spending it on a holiday.
Over the weekend, I listened to a debate on Radio 5Live that said the pensionswise.gov.uk site was still being updated just hours before the legislation came into effect with consumer guidance. And the cynics are claiming an ulterior motive with the estimate from The Institute of Fiscal Studies of an extra £1bn of tax revenues for the Treasury from the new arrangements. What is clear is the industry is slow to react. A poll commissioned by PwC reported over the weekend that only a third of 50-75yr olds had been contacted by their providers.
Don’t get me wrong, I welcome the changes introduced by this Government. The supplementary pension market needed disrupting and the Government has been bold in its actions.
If this was a story about Apple or Google, we’d all be strapping ourselves in and getting ready for the ride!
But this is a story about our money with a backdrop of massive consumer mis-trust in our financial institutions. The insurance industry has been dogged by poor sales practice and bad advice and this shake-up in pensions has the hallmark of the next mis-selling scandal in the making. The cost to the financial services industry has been enormous so far. A study by KPMG reported this week that Britain’s biggest banks have collectively paid £39bn as a result of financial scandals, with almost half on PPI and interest rate hedge mis-selling.
Yet it’s barely five years since the Payment Protection Insurance (“PPI”) mis-selling scandal hit the headlines, and we are possibly on the cusp of the next one after seeing this headline in Tuesday’s Telegraph;
“Pension mis-selling: scandal hits 100,000 retired savers a year”
The report goes on to claim that “approximately one in four pensioners who retired with a private pension in the past seven years is entitled to a larger annual pension income.”
The problem reported by the Telegraph revolves around the sales process. Insurance agents are either not asking the right questions or not listening to the answers, which all means that they are not conducting a thorough review and certainly, not giving best advice.
And the problem is that both consumers and the insurers lose out. It’s a false economy to make a bad sale because in the end, everyone pays for getting it wrong. And whilst no one can predict the future, insurers can do so much better at providing assurance.
Which is where RecordSure comes in. This looks like the right solution at the right time for the insurance industry.
RecordSure is a compliance monitoring solution that claims to be first of its kind in the marketplace. The technology is not restricted to insurance, or even financial services, it can be used for any industry where compliance is fundamental to the nature of that business.
Simply, RecordSure records conversations between two parties, which for insurance products would be consumers and advisors.
The clever bit is that RecordSure uses Artificial Intelligence to automatically analyze and review the conversation. The technology solution “listens” for potential problems and compliance breaches and reports them for further review and remediation.
And because all conversations are stored securely in UK based datacenters, they can always be recovered and replayed should there ever be a claim or dispute at any time in the future (which would curtail the surge in no-win, no fee claims handlers who have profited from previous mis-selling).
RecordSure is a Fintech startup just over two years in the making. The business has been bootstrapped by The Consulting Consortium, a specialist advisory and services business that serves the financial services industry and RecordSure is now in pilot stage with several insurers, banks and intermediaries.
To illustrate how RecordSure works, I spoke with Joanne Smith, CEO of RecordSure and she explained to me how the solution works in a four step process.
First, there is the interaction between the two parties. This can be a recorded face to face interview, a phone call or a video call. Today, in call centers up and down the country, calls are recorded and randomly listened to but they are not adequately analyzed and reviewed for breaches. It is impractical and unaffordable to have someone listen and pay attention to 100% of all interactions between consumers and sales agents.
Second, the interaction is stored in a secure vault for as long as is necessary. The analysed call is cataloged, available to be retrieved and replayed should there ever be cause for dispute. This is important because whilst many calls are recorded, typically the record of an interaction are the notes written by the advisor. Whilst these notes are required to be signed by the consumer, they are limited in being able to provide an accurate and ‘in-context’ representation of the dialogue between the parties.
Third (the interesting bit!), the interaction is analyzed using artificial intelligence software to identify adherence to policy and rules, or detect suspect or missing dialogue. The software is looking for what has not been said as much as what has been said. A case for mis-selling can often be proven because of what the agent did not do or say during the sales process.
RecordSure is configured to look for the missing as well as the mis-represented!
Under the covers the RecordSure technology is building a deep neural network for every conversation, analysing the language and conversation flow against many hundreds of thousands of data points that have been meticulously compiled between compliance experts and RecordSure’s teams of speech, language and data scientists.
And the system learns. Every time a compliance professional finds something new (for either good or bad) within a customer interaction, RecordSure is then able to use the new learning to search both new recordings as well as previously recorded conversations for similar occurrences of either the positive behavior, or of deviations to acceptable practice.
The result is that a 60 minute interaction can be analyzed systematically, looking for the few moments when the interaction may need review.
Fourth, and the last stage. Should the analysis identify a suspect interaction, the call is reviewed by the RecordSure expert team and then passed to the insurer’s compliance office with the outcome of the review. For example, during a sales call the agent fails to apply the policy when the consumer confirms they are of a certain age that requires additional checks to be made before an investment decision can be accepted. It maybe an oversight by the sales agent, or simply ‘convenient’ to ignore the age-related policy, but either way, it’s a non-compliant interaction that needs to be rectified.
In this event, the interaction would be referred to the compliance officer with an instruction to “listen to minutes 31 to 35 when the agent said this or didn’t say that”. This allows for corrective action to be focused specifically on the problem part of the interaction and taken before any transaction can be finalized.
From seeing how RecordSure goes about its business of monitoring all interactions for compliance, I suspect that there will be some on the advisory side of the industry who will see this as a step too far. This is a highly regulated industry that demands a lot from its sales process already and some may not want to be monitored (interfered with) in this way.
However, on the whole, this is has to be good thing for the industry as it protects all parties. Above all, it leads to a culture of transparency and ensures an impartial record of what actually went on. Which all goes to providing the assurance in the sales process the consumers, regulators and shareholders all want to see.
If we’ve learnt one thing since the financial crisis of 2007, it is that we need to restore trust in our financial institutions and RecordSure looks like the kind of innovative technology that will go along way in restoring that trust and faith.