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									                                  Age Consultation response pro-forma

The consultation closes on 30 September 2009. Please let us have your response
by that date.

When responding, it would be helpful if you could provide the following information.

Please fill in your name and address, or that of your organisation if relevant. You may
withhold this information if you wish, but we will be unable to add your details to our
database for future consultation exercises.

Contact details:

Please supply details of who has completed this response.

Response completed by (name):                     Katy Litt

Position in organisation (if appropriate):        Senior Public Affairs Manager

Name of organisation (if appropriate):            Aviva

Address:                                          Wellington Row
                                                  YO90 1WR

Contact phone number:                             01904 452548

Contact e-mail address:                           katy.litt@aviva.com

Date:                                             30 September 2009

Under the Code of Practice on Open Government, any response will be made available to
the public on request, unless respondents indicate that they wish their views to remain
confidential. If you wish your response to remain confidential, please tick this box and say
why. If we receive a request for disclosure of the information we will take full account of your
explanation, but we cannot give an assurance that confidentiality can be maintained in all
circumstances. An automatic confidentiality disclaimer generated by your IT system will not,
of itself, be regarded as binding on the Department.

                                  Age Consultation response pro-forma

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                                              Age Consultation response pro-forma

Q1- 3: Health and Social Care

Aviva is not responding to these questions

Financial services

  Question 4: Which of the following high levels options do you prefer, and
  why: Option 1 (strict implementation of the ban on age discrimination, with
  no specific exception), Option 2 (a tailored specific exception allowing age
  to be used provided that it is proportionate to risk and costs) or Option 3 (a
  wide specific exception, which would mean that all current practices could
  continue)? Please state your reasons.

Please place a cross in the appropriate box

  Option 1              Option 2                  Option 3                None of
                                                                  X         them

Please explain why -

The independent Oxera study into the financial services market found that
“from an economic perspective, the risks that are correlated with age are being
correctly priced and that, in terms of absolution availability, there are no significant
age-related segments of the market that are currently unserved (for the products
examined)” (p.iv).

Aviva therefore feels there is no case for restricting the current practices of the
financial services market and that Option Three is the suitable outcome for the

Aviva does recognise that a minority of customers find it hard to purchase insurance
products due to their age, and is therefore committed to working with the industry to
develop a signposting system which will help customers denied an insurance quote
find a suitable product. In some product lines we already offer our own referral

However we feel legislating reform of the market would deliver no customer benefits
and may run the risk of bringing unintended consequences. For example, removing
the ability to operate age limits or age bands in order to broaden the market may
have the converse effect of prompting insurers to withdraw from some markets as
they are unable to manage the risk of their customer pool.

The breadth of any proposed legislation is unclear – the lobbying and research focus
around insurers‟ use of age has focused on motor and travel markets and so any
attempts to impose regulation on the broader insurance market may have further
consequences which have not been fully considered. This would be of particular
concern in longer term products such as pensions and life insurance, and those
which have a smaller market for customers of older ages (such as term life
assurance which aims to cover mortgage debt during a customer‟s working life.)

                                              Age Consultation response pro-forma

  Question 5: Do you believe that the following is an adequate description
  of what might be acceptable evidence: “acceptable evidence should be
  about a risk identified by actuarial, statistical, medical or other information
  relating to the person’s age. It should include public or private empirical,
  actuarial, statistical, qualitative research or other material or data, and
  evidence of costs, including but not limited to administrative or operating
  costs. It could be from UK or international sources, based on industry-wide
  data, firm-specific data or the experience of another firm, provided that it
  was relevant, accurate and from a source upon which it was reasonable to
  rely”? Please state your reasons and if there are other factors that should
  be included or whether some elements should be removed.

Please place a cross in the appropriate box

  Strongly                 Agree          X        Neutral               Disagree   Strongly
    agree                                                                           disagree

Please explain why –

To accurately price products and manage risk insurers use a wide range of data and
evidence, from a variety of sources, include proprietory data, market data, academic
analysis, actuarial studies, medical experience and future assumptions.

Aviva therefore feels the wide definition is largely adequate but must allow insurers to
draw on their own analysis of future projections based on expectations of changes in
factors such as claims inflation, expected changes in morbidity and mortality, or
increase in periodic payment orders.

                                              Age Consultation response pro-forma

  Question 6: Do you think that age based pricing should not require strict
  mathematical proportionality?

Please place a cross in the appropriate box

       Yes         X          No                    Not

Please explain why –

Aviva agrees that age based pricing should not require strict mathematical
proportionality because insurers set prices using many factors unrelated to age. For
example, proportionality of price to age may be affected when insurers take account
of future assumptions which will necessarily move prices away from direct correlation
to the published historical data.

Where experience data is limited (for example, if a firm moves into new markets or
quotes for ages where it may have limited experience) insurers may need to make
certain assumptions and indeed commercial considerations in this area could distort

Age is only one of many factors used to assess risk and therefore price products, so
comparing prices, influenced by many other factors, with ages would give an
inaccurate reflection of how age impacts on price as it is difficult to isolate age as the
key determinant behind a change in premiums

Additionally, the fact insurance is about spreading risk by smoothing quite volatile
risks between integer ages, full proportionality would not favour the young and old
who are often subsidized. This was confirmed in the Oxera study which found prices
do not increase as fast as the expected claims costs would suggest.

                                              Age Consultation response pro-forma

  Question 7: To what extent do you think that commercial considerations
  should be allowed to be taken into account in financial services provision
  and which factors should be permitted?

Please place a cross in the appropriate box

Should be         X       Should                 Just used              Should be    Should
  allowed                be used                     where              Controlled    not be
      very                 widely               appropriate                          allowed

Please explain why -

Aviva strongly believes that as a private sector organisation, we need to be profitable
to prosper and to ensure that we are still around to provide products in years to
come. Financial services firms should therefore be allowed to consider commercial
considerations and in order to be profitable we have to be able to underwrite relative
risks and charge accordingly.

Many insurers use features such as excess levels and cover restrictions to manage
risk. For example, travel and health insurance have cover restrictions such as pre-
existing medical conditions (which is intrinsically linked to age) to manage the cost of
claims and ensure the ongoing stability and profitability of insurers.

If insurers could no longer apply age based treatments such as lower death sums
insured for children and lower permanent total disablement sums insured for those
over 70, customer access would be reduced as some firms may consider
withdrawing some terms or removing cover completely to manage risk.

In addition, maintaining insurers‟ freedom to exercise differentiated excesses or
cover restrictions can have broader positive outcomes, such as the positive impact
on road safety of restricting young drivers‟ access to higher performance vehicles.

Allowing commercial considerations to help insurers manage a balance of risks
should ensure a broad range of products available to all customers. As the Oxera
report found, although older customers pay higher premiums for travel insurance, the
premiums are less than the cost of claims and the losses incurred by insurers when
covering these customers are recouped by the premiums earned by offering
insurance to other age groups.

                                              Age Consultation response pro-forma

    Question 8: Do you think restrictions should be placed on the use of age
    bands within financial services provision? If so, please state your reasons,
    with examples where relevant.

Please place a cross in the appropriate box

       Yes                    No          X         Not

Please explain why -

Aviva does not believe restrictions should be placed on the use of age bands within
financial services, as age bands serve a number of useful purposes in helping
simplify the techniques insurers use to price and manage risk.

Age bands can help insurers offer products to as broad a range of customers as
possible. Where an insurer has a limited number of customers of a specific age,
actuarial data is limited and it is impossible to know whether the firm‟s experience
reflects a consistent pattern of risk and claims, or is something of an exception.
Using an age band to compare this integer group to others of a similar age can help
firms price risk more accurately, and therefore calculate a suitable premium.

Without this use of age bands to pool risk, calculating premiums accurately can be
undermined by a degree of uncertainty. This translates into a higher risk premium to
safeguard against the possibility that limited claims data reflects an inaccurate picture
of risk.

Both the CRA research report commissioned by the ABI1 and the Oxera2 report found
that removing age bands would be unlikely to have an impact on pricing as
customers in narrower age bands would pay the same as customers in the age
bands close to them. In some cases, removing age bands may result in
redistribution of prices: customers at the older ends of current age bands will pay

Age bands reflect a simpler underwriting process, which reduces costs and
encourages more distributors. Aviva is therefore concerned that the transactional
and compliance costs of narrowing age bands will could lead to higher prices for
customers and may cause some insurers or distributors to leave the market

Although Aviva strongly believes the use of age bands or otherwise should be left to
commercial firms to set themselves, we do understand the concerns of some
customers who experience higher premiums as they move into an age band which
pools their risk with older customers. We are therefore currently investigating moving
alternatives to age bands by using more sophisticated underwriting techniques in
some product lines to reduce the negative perceptions some customers may

          CRA International Insurance and Age-based Differentiation, ABI Research Paper No.12, 2009
          Pages 59-65.

                                               Age Consultation response pro-forma

  Question 9: What are your views on the advantages and disadvantages of
  narrowing age bands? What size should the age bands be (eg. 1 year, 2
  years, 3 years, 4 years, 5 years)? Where risks are broadly similar, is a wider
  age band reasonable? How could firms justify a particular banding

Please place a cross in the appropriate box

1 year               2 years                  3 years              4 years           5 years   Other   X

Please explain why -

Aviva believes setting a specific range for age bands would be arbitrary given the
distribution of risks. Different products and insurers use different age bands
according to their own underwriting practice and experience and this commercial
freedom must be allowed to continue.

For example, for motor insurance Aviva already uses integer ages for the most part
but uses broader bands in travel insurance, though we are currently reviewing travel
pricing to better reflect individual risk to help avoid any steep jumps relative to age
alone, however, the correlation between age and medical claims costs and
frequencies will still result in cost differences for certain individuals.

Grouping one wide set of customers with similar risks into multilple bands would
mean in many cases each of these smaller bands would interact with risk and price in
the same way making the distinction of age bands meaningless. Therefore where
risks are similar a wider age band is reasonable.

As the Oxera study found, imposing artificial limits on age bands may have a similar
effect as removing them, in that it would redistribute rather than reduce prices (p vi).

                                              Age Consultation response pro-forma

  Question 10: Do you think that firms should be able to continue to set
  minimum and maximum age limits for products – quoting only to people
  within those age limits? Please state your reasons why with examples
  where relevant.

Please place a cross in the appropriate box

       Yes         X          No                Neutral                  Not

Please explain why -

Aviva strongly believes firms should be able to continue to set age limits for products,
in line with the Oxera report which found that “in terms of absolute availability, there
are no significant age-related segments of the market that are currently unserved”

Age limits can help ensure a competitive insurance market to benefit a broad range
of customers. Where insurers have extremely limited actuarial data and are unable
to price a product accurately and competitively, they may impose an age limit on
some insurance products.

Maximum or minimum age limits allow firms to specialise in offering products to a
particular age group in general or targeting customers that are more likely to need
different types of cover. Outlawing age limits may therefore reduce customer choice
as those insurers which manage their risk pool by targeting cover to particular groups
may choose to withdraw from the market altogether.

However we do acknowledge that some customers may find it harder than others to
access products for their age, which is why we are working closely with the
Association of British Insurers to refine proposals for signposting and referral
services to help customers access appropriate products.

In some product lines, including motor insurance, Aviva has increased the limit for
new customers as the ageing population gives us more existing customer data on
which to rate risk. This in turn will have the effect of increasing data volumes for
older drivers on which to base further widening of acceptance.

It is also worth noting that although most customers must normally buy an annuity by
75, Aviva does offer policies up to age 90 as some people take an Alternatively
Secured Pension at 75 and may later purchase an annuity.

                                              Age Consultation response pro-forma

  Question 11: Should age-related special offers, such as age-related saver
  accounts and marketing still be permitted? Please state the reasons for
  your answer.

Please place a cross in the appropriate box

       Yes         X          No                    Not

Please explain why -

Aviva believes age related special offers should still be permitted as there seems no
clear customer case for prohibiting them. Removing an offer targeted at a particular
age group would not benefit all other age groups, merely penalise those for whom
the offer had been withdrawn.

In addition, much of Aviva‟s advertising and marketing focuses on significant
moments in a person‟s life (such as birth/marriage/ first home/ retirement) and these
are loosely associated with certain ages. Legislation should not inhibit firms‟ ability to
target particular groups of customers with such messages.

                                              Age Consultation response pro-forma

  Question 12: Do you think signposting and / or referrals would be helpful
  for customers looking for various financial services? Which do you prefer?
  How do you think such a system could best be set up?

Please place a cross in the appropriate box

       Yes         X          No                    Not

If you answered „Yes‟, which do you prefer?

 Signposting               Referrals                  Both

Please explain why -

For some product lines Aviva already operates referral systems and believes these
arrangements should be permitted to continue. However, this does rely on
companies being able to come to a suitable arrangement, whereas signposting is
open to all. In reality both are probably needed.

Aviva is therefore working closely with the Association of British Insurers to help
develop a telephone-based signpost service to help those customers who may have
trouble finding a quote access the insurance products they need. This system will
support older customers trying to find motor and travel insurance and will be
developed in conjunction with government, industry and age charities.

Aviva is concerned about the extent to which the legislation intends to define what
would be a suitable signpost service and feels the current collaborative, non-
legislative process would be more effective.

In any signpost or referral service, firms will need to ensure customers understand
that the insurer has not made a recommendation or given advice.

Aviva would also seek urgent clarification around the scope of any required service –
the Equality Bill consultation and Oxera research focus on motor and travel insurance
sectors as these are the sections of the market with perceived access problems.
Aviva believes it would be unnecessary, costly and heavy handed to impose a similar
signposting requirement across all financial service product lines.

                                              Age Consultation response pro-forma

  Question 13: Do you think a requirement to publish data at industry level
  would serve a useful purpose for consumers and/or the financial services
  industry? Please state your reasons. If yes, what sort of data would you
  like to see published?

Please place a cross in the appropriate box

       Yes                    No                Neutral                  Not
                                                                        sure        X

Please explain why -

Aviva feels the case is yet to be made for the customer benefits brought about by
publishing data regarding insurers‟ use of age, and without compelling evidence
would question if it is worth the investment to develop suitable publication
requirements. A precedent in this area is the data published under the Gender
Directive/Sex Equality Act and we would question how many customers have sought
this information or found it useful.

If the political case for publishing data imposes requirements on financial services
firms, we would argue that firms must be allowed to reference collective industry level
data as under the Sex Equality Act to avoid any competition arising through the
exposure of proprietary company data.

As outlined in our answer to question six, any data published should not be required
to evidence proportionality between price and age as all insurers use different pricing
models and the final rate reflects the interplay of a range of factors.

                                              Age Consultation response pro-forma

  Question 14: Do you think that there is a better or alternative method of
  achieving greater transparency, to increase confidence that age is being
  used appropriately within financial services?

Please place a cross in the appropriate box

       Yes                      No                  Not
                  X                                sure

Please explain why -

Aviva believes that in terms of public confidence, independent market studies would
probably carry more weight that data published by the industry, though this
assumption should of course be subject to consumer testing. Aviva has welcomed
the Oxera report as it provides a robust evidence base from which to develop policy,
with a clear insight into potential unintended consequences.

Repeating market studies, such as the Oxera study, at regular intervals may be a
more customer-friendly and trusted way to monitor how the financial services market
is developing and to investigate whether voluntary initiatives, such as the signposting
service in development, are meeting the objective of increasing the reach of
insurance and removing barriers to access.

Q 15 – 17: Other sectors

Aviva is not responding to these questions

  Question 18: Do you agree that there should not be a specific exception
  allowing upper and lower age limits on the rental of vehicles? Please state
  your reasons, with examples where relevant.

Please place a cross in the appropriate box

Strongly                Agree                   Neutral                Disagree     Strongly
agree                                                                               disagree

Please explain why -

Aviva has no comment on this specific question but does respond to question
nineteen below.

                                              Age Consultation response pro-forma

  Question 19: Do you agree that vehicle hire companies should be able to
  vary their prices by age to reflect age-based insurance premiums? If so, do
  you consider that there should be a specific exception to this effect?

Please place a cross in the appropriate box

Strongly                Agree                   Neutral                Disagree     Strongly
agree                                                                               disagree

Please explain why -

Aviva believes vehicle hire companies should be able to vary prices if they so wish as
this would reflect the real risk of any claims. However many hire companies tend to
charge flat rate costs and cross subsidise for ease of administration and this choice
should not be a matter for legislation.

  Question 20: Are you aware of any further age-based differences in
  treatment which would be prohibited under the legislation prohibiting age
  discrimination which you consider should be allowed to continue? Should
  these be protected by a specific exception and if so why?

Please place a cross in the appropriate box

       Yes                      No

Please explain why -

  Question 21: Do you believe that there is a good case for a specific
  exception for an area which is not covered in this consultation document?
  Please state your reasons, with examples where relevant.

Please place a cross in the appropriate box

       Yes                      No

Please explain why -

Aviva has no comments in response to this question.

                                              Age Consultation response pro-forma

Impact Assessment

  Question 22: Do you have data on costs and benefits which has not
  already been included in the provisional impact assessment? Where
  possible please give details of the sector concerned; monetary
  costs/benefits; non-monetary costs/benefits (e.g. restriction/widening of
  consumer choice); useful research/databases etc.

Please provide details below -

Aviva has no comments in response to this question.

Timetable for implementation

  Question 23: What are your views on the proposed timetable for
  implementation of the ban on age discrimination in services and public

Please place a cross in the appropriate box

Far too                 A little                About                  A little too   Too slow
quick                   too                     right        X         slow

Please provide details below –

The consultation indicates that a draft Order laying out the precise exceptions will be
published for consultation in October 2010 and following consideration by Parliament
should be laid in 2011. This seems to be reasonable in the context of any restrictions
on the financial services industry coming into force in 2012.

Aviva feels the timetable for the Order should be aligned to the progress of the EU
Directive – provided this is the case the timetable should be „about right‟. Should
either the EU Directive or the UK Order require any reforms to current financial
services practices, it would be far simpler and cheaper to implement these reforms at
the same time. Given the EU Directive is expected to be adopted in 2010, we would
assume we would need to comply in 2012 which indicates the timetable currently
looks about right.

Q24 & 25: Other points

Aviva is not responding to these questions


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