Life houses seek more from risk raters

The inauguralMoney ManagementRating the Risk Raters Survey has turned out some interesting findings in the areas of transparency, ethics and integrity.

Some of the notable findings include 100 per cent of respondents believing that research houses should both be held accountable for their recommendations and also fully disclose their ownership and financial structures.

On the issue of transparency, one respondent felt some risk researchers failed to understand the businesses they were actually rating and argues these rating organisations need to develop a greater understanding of the risk insurance business.

“The ratings process is not transparent enough. A more consultative approach needs to be adopted by research houses before subjective decision-making. Ratings are too one dimensional, as they [the rating houses] do not seem to adequately understand the business they are rating, for instance in terms of capital adequacy and reserving,” one group surveyed says.

Other findings include a high proportion of respondents (82 per cent) arguing that research houses fail to differentiate their services relative to other providers in the market, however, the same percentage of those surveyed did believe their final rating assessments enabled them to benchmark their respective firms against competitors.

Threesixty was one of the poorest rated in the area of transparency, with close to 90 per cent of respondents believing that ‘improvement was required’ for theMLC-owned provider. Boss also posted a less than stellar showing in the area of transparency, with no respondents deeming its lucidity ‘excellent’ or ‘good’, but rather 70 per cent believing the level of transparency was merely ‘acceptable’ and the remainder feeling that it required improvement.

Omnium received a mixed reception on the same issue, with 50 per cent of those surveyed believing it provided a ‘good’ level of transparency, while 37.5 per cent felt it required improvement.

Of the 10 raters in the survey, three of them — Omnium, Razar and Smart Comparator — are different to the others in that they offer product comparisons (in terms of pricing, features and definitions) rather than specific analysis of risk providers, and therefore the results of the survey need to be interpreted with that in mind.

With regard to the question of the professionalism of risk raters, particularly in terms of integrity of results and methodology and the impact a given house’s rating has on respondents in terms of effect on premiums and business inflows, PlanTech Consulting Group came out on top.

Thirty-six and 64 per cent of respondents deemed PlanTech’s professionalism as ‘excellent’ and ‘good’ respectively, while 37.5 and 62.5 per cent of those surveyed found being rated by PlanTech to have ‘excellent’ and ‘good’ impacts, respectively, on their businesses.

Other relatively strong performers in this area included Boss and Cannex, with 45 per cent of respondents believing both had either excellent or good levels of professionalism.

Omnium, Razar and Smart Comparator all appear to have a limited impact on the businesses of those surveyed, with 57, 42 and 66 per cent of respondents respectively rating them as having either a minimal or no impact on their businesses. However, this may be because these raters offer comparative tools rather than analysis of products and providers.

On the issue of comparing providers with regard to all raters, one group surveyed was highly critical of the premium comparative tools offered by research houses, arguing they need to be improved dramatically because they are restrictive and inflexible.

“There doesn’t seem to be any consistency in the calculation methods at present, with some optional benefits, such as the waiving of premiums being modelled for some companies but not others. In addition, the software is not significantly flexible to reflect the unique features of the companies in modelling premiums, hence users are still required to have access to individual company software,” one respondent argues.

With regard to whether ratings reflect the strengths and weaknesses of the individual risk providers, PlanTech Consulting seems to offer the best service with 60 per cent of respondents believing its ratings ‘significantly’ reflected their business’ strengths. Meanwhile, 50 per cent of respondents felt Threesixty’s rating of their business reflected their strengths and weakness ‘not at all’.