A bulk annuity insurer will want to ensure that it has accurate quotation data in order to price the deal accurately and prevent it inheriting problems, while pension scheme trustees will want warranties regarding accuracy of quotation data to reflect what they are already planning on doing, rather than the warranty terms driving their approach.
Insurer perspective
Insurers will want to know that the trustees have handed over all of the data and information it has that might have a material impact on how they price the deal. It will also want to know that it is not going to inherit problems or nasty surprises with the benefits, especially when it takes over responsibility for administering benefits at the buy-out phase.
Typically, the insurer is going to want the trustees to give comprehensive warranties confirming that the quotation data is complete and accurate in all material respects and that all relevant information has been handed over. These warranties will need to be given at the point of the buy-in and then again subsequently at the end of the data cleanse period.
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Trustee perspective
Trustees will want to be as sure as possible they can give the warranties without breaching them and they will not want the wording of the warranties to force them to materially change their plans. Trustees should seek insurers’ upfront agreement to the terms of readily acceptable data warranties as part of the requested contractual terms (RCTs) process.
For example, an insurer may want the trustees to give a wide warranty that the quotation data is complete and accurate in all material respects. The trustees may want this changed to a warranty that they have extracted the quotation data from their admin systems and given it to the insurer without having amended it – which may be all they were planning on doing.
The insurer might also want the trustees to warrant that they have made reasonable enquiries and taken professional advice when checking the accuracy and completeness of data.
Trustees might want this modified to a simple confirmation that they have asked their scheme administrator if there are material inaccuracies – which is much less onerous for the trustees than engaging lawyers and actuaries to thoroughly ‘kick the tyres’ on the data.
Generally speaking, insurers will want as wide a range of remedies as possible where the trustees have breached their data warranties, whereas trustees will want the remedies to be as limited as possible.
For example, an insurer might want the right to terminate the contract if there has been a breach of a warranty that is “fraudulent or reckless”. Trustees, by comparison, might try and push back against this and argue the termination right should only apply where they have been fraudulent, which is a very high threshold.
An insurer often asks for the various ‘material change’ remedies to apply if there has been a material disclosure breach. Trustees may push back against this and argue that instead of the insurer being allowed to reprice the deal, it should only have a contractual claim for damages it has directly suffered as a result of the breach of warranty.
Duty of fair presentation
Under the Insurance Act 2015, by default the trustees have an overriding duty to make a fair presentation to the insurer of relevant information.
This is a potentially onerous and wide obligation that involves disclosing all material information to the insurer.
If this duty is breached, the legislation then gives the insurer a range of overriding remedies. These remedies are quite wide and insurer-friendly and potentially involve the insurer being allowed to terminate the contract even if the trustees have not been fraudulent or reckless.
Trustees will often ask that the Insurance Act disclosure obligations and remedies be disapplied under the policy for this reason. Insurers are sometimes willing to accept the disapplication of the Insurance Act in exchange for suitable data warranties in its place.
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