Pensions can be complicated and there are many terms and conditions that customers and colleagues at pension providers need to get their heads around.
We supported a pensions provider, who offered a particular range of unit-linked pension products between the mid 1980s to the mid 1990s, to rectify a longstanding issue, eliminate human error and improve customer experience. . One of the features of the pension products was a loyalty bonus. This meant that customers could accrue a given percentage each year that they stayed within the scheme and receive the bonus when they retired or transferred to another provider. This bonus could be as much as 15% of the product’s unit value which was a significant sum of money.
However, correctly determining the amount of bonus that policyholders had accrued was complex and difficult. Calculating the accrual depended on the timings that the customer paid their premiums and the terms and conditions of their product.
We were already administering the range of pensions on behalf of the provider when we noticed that the loyalty bonus calculations being presented to us were wrong. We immediately notified the provider that the bonus payments were being paid incorrectly. Our actuarial team then investigated the issue further and discovered that colleagues at the pension provider were using spreadsheets based on an incorrect interpretation of the calculations to determine the bonus level. Our team explained the flaws in these spreadsheets and backed this up with a concrete rationale to show the provider that their original interpretation was incorrect.
Redesigning the process to improve the customer and colleague experience
After identifying the error, we used our actuarial expertise to redesign the entire process to determine the correct bonus payments.
The company’s mainframe system, which manages their policies, was never able to deal with the bonuses correctly because of their complexity, so they always had to be determined manually. This meant that colleagues had to rely on using spreadsheets that were vague and
difficult to understand. They were also time consuming to fill out, often taking 20 minutes for each policy. And because the spreadsheets were difficult to apply manually, the calculations also had to be checked by a senior employee, adding more time to the process.
We used our actuarial knowledge to develop a standalone tool that would eradicate human error, ensuring that the correct bonus payments could be made and accurate projections could be sent to policyholders. We approached the task with three main aims:
- To create a new on-demand process so that the current loyalty bonus values were immediately available to quote to the policyholder
- To determine how many policyholders had been affected by incorrect bonus calculations, so they could be compensated where required
- Ensure that the correct bonus positions were fed into the current projection process, so they could be used to ensure that correct projected values were quoted to the policyholder.
Continually optimising and improving
Due to the complexity and time-sensitive nature of the bonuses, we set out to develop a tool that could calculate the bonuses daily for each policy. This would also eradicate the manual process and always ensure complete accuracy. To do this we had to reconstruct the entire premium history (which could span 30-40 years) for 156,000 policies and track ongoing payments on a daily basis. We processed around 30 million historic transactions for these policies with a premium history totalling just under £1bn.
We used our in-depth knowledge of how the mainframe worked to design a solution that could be fed daily transaction data for the policies and process them correctly. Our original solution took 2.5 hours to complete a daily update which was far too slow and would hold up customer services. So, we continued to optimise the process by breaking down all the in-built queries and recoding them completely from scratch. The end solution now only takes around 20 minutes to update each day (which is run out of hours, so the system is available at the start of the working day) and this process is fully automated.
We also adapted the solution so that it could be used to calculate compensation requirements for policyholders that were given an incorrect bonus amount. A total of 3,500 policyholders were compensated with a total value of around £2 million.
Creating a much smoother, faster and accurate process
Colleagues can now use the tool to determine an accurate bonus figure in just one minute, rather than work through cumbersome spreadsheets. This calculation is fully audited and no longer needs checking. The new tool is so smooth and secure that it is now used by front office staff when answering queries on the phone. This prevents the queries having to be transferred to the back office and improves customer experience by ensuring policyholders get a quicker response.
Since the tool went live in December 2019 it has been used over 10,000 times – saving over 2,300 work hours. It’s been designed to be flexible so, should the client request a change to the methodology, we can quickly adjust it and recalculate to show the effect of the changing requirements.