Cost to Clients of Annual Surety Bonds

The request was partially successful.

Dear Office of the Public Guardian (OPG),

I act as a deputy for one of your clients. I am required to pay annually, on behalf of your client, for a surety bond such that if the insured estate suffers a loss due to maladministration on my part, then the Court of Protection will order the insurance company to reimburse any loses.

This year I am required to pay insurance to cover a value of capital which represents the value of the client’s estate five years ago. The estate has since halved in value due to the cost of care, (as I have reported in the annual accounts that I am required to submit to you). I cannot change the amount insured except by going back to the Court of Protection and paying a fee of £400. I have decided that it is currently not economic to do this.

As a consequence, the client will be paying a surety fee of £300 this year. Of this payment, £150 will pay to protect her now reduced capital and £150 will be an involuntary charitable donation to the insurance company. I have talked about this matter to a Court of Protection visitor and he has indicated that this situation is not uncommon.

The client for whom I am deputy has now paid five annual premiums, even though the risk to her estate is a one-off risk rather than an annual risk. Furthermore, the annual premium is unchanged, even though the risk has greatly diminished over time (given that I have submitted to the OPG and had accepted successive sets of annual accounts).

Given the preceding circumstances, there needs to be safeguards to ensure that the insurance company is not making excess profits. One way to guard against this possibility would be for the OPG to publish annual data on the amounts paid out and received for indemnity insurance.

I should like to know the following.

1. What steps do the OPG undertake to ensure that their clients are paying a fair price for annual surety bonds?

2. Specifically what steps, if any, do the OPG take to ensure that the insurer does not make excess profits due to the fact that in many cases the actual value of an estate is less than the nominal sum insured?

3. Have the rates for surety bonds remained fixed since their introduction or have they been amended as the rate of payout has become apparent?

4. Why are clients required to insure the full amount of their estate each year when they can only lose their estate once and not on an annual basis?

5. Have the OPG considered the need to publish annual data on the amounts paid out and received for surety bonds and if so why have they concluded that there is no business need to publish this data?

6. In response to a previous freedom of information request the OPG stated that they do not currently collect data on bond insurance pay out rates. If such information resides solely with the current preferred bond provider how do the OPG ensure that potential alternative bond providers are not constrained in their offerings by lack of access to this information?

In support of the preceding requests for information I would like the following to be noted.

A. In response to a previous Freedom of Information Request (FOI) it has been established that the OPG collects data on the total value of annual premiums received and the response to another FOI has established that the OPG could have access to the raw data on reimbursements ordered by the Court of Protection (COP) and it would merely need to capture, record and cumulate these as they occur, in future, to provide annual data. Furthermore the OPG 2013/2014 annual report states the following in regard to applications made to the Court of Protection. “These applications included 15 applications to freeze accounts and 3 applications for the forfeiture of security bonds, in the light of evidence gathered by the Public Guardian which confirmed financial abuse.” On this basis, it would seem that the cost of collecting data to determine the annual value of reimbursements could be small.

B. The administrative costs of the bond provider are low since they have no customer acquisition costs and they do not need to assess claims since this assessment is undertaken for them by the Court of Protection. Indeed, they only have to collect the fees and pay out when instructed by the COP. The number of payments per year is probably small and the total annual amount paid is therefore subject to some statistical variation. Nevertheless the underlying insurance risk is constant from year to year (unlike, for example, house insurance where there may be considerable payments for flooding in one year but not in another).

C. The risk model used by the insurance company is clearly over-simplified. By charging a fixed annual fee, it assumes in effect that a client is twice as likely to experience a loss over a two year period as over a one year period and twice as likely again to experience a loss over a four year period. This is an unrealistic assumption. Furthermore, when a client dies there is no refund of that year’s fee and this is justified on the grounds that the insurance remains in force for a further two years. Thus some clients forfeit an eleven month refund for the additional 2-year period of insurance, whilst others forfeit only a one month refund for the same coverage. It is clear that OPG clients are being co-opted into an insurance scheme which operates on a pooled basis where at best the average fee is related to the average risk, but there is cross subsidy between clients who participate for different periods of time or who leave the scheme at different times throughout the payment schedule. This pooling has the advantage that it reduces administrative costs and could potentially mitigate larger up-front fees, but it is ONLY acceptable to run a (mandatory) indemnity insurance on this basis if there is FULL TRANSPARENCY and FULL ACCOUNTABILITY. This would require annual publication of the payments made into and the payments made out of the scheme for each year.

Yours faithfully,

Terry Johnson

Office of the Public Guardian

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Sent request to Office of the Public Guardian again, using a new contact address.

OPGInformationAssurance,

1 Attachment

Dear Mr Johnson,
 
Please find attached an acknowledgement to your recent request.
 
Kind regards

Hayley Bools | Knowledge and Information Liaison Officer| Office of the
Public Guardian
 
PO Box 16185 I Birmingham I B2 2WH

DX 744440, Nottingham 51

I am not authorised to bind the Office of the Public Guardian nor the
Ministry of Justice contractually, nor to make representations or other
statements which may bind the OPG or MOJ in any way via electronic means.

show quoted sections

OPGInformationAssurance,

1 Attachment

Dear Mr Johnson
Please find attached a response to your recent request.
Kind regards

Hayley Bools | Knowledge and Information Liaison Officer| Office of the
Public Guardian
 
PO Box 16185 I Birmingham I B2 2WH

DX 744440, Nottingham 51

I am not authorised to bind the Office of the Public Guardian nor the
Ministry of Justice contractually, nor to make representations or other
statements which may bind the OPG or MOJ in any way via electronic means.

--------------------------------------------------------------------------

From: Bools, Hayley On Behalf Of OPGInformationAssurance
Sent: 09 June 2015 13:24
To: '[FOI #272167 email]'
Subject: Freedom of Information request - Cost to Clients of Annual Surety
Bonds
Dear Mr Johnson,
 
Please find attached an acknowledgement to your recent request.
 
Kind regards

Hayley Bools | Knowledge and Information Liaison Officer| Office of the
Public Guardian
 
PO Box 16185 I Birmingham I B2 2WH

DX 744440, Nottingham 51

I am not authorised to bind the Office of the Public Guardian nor the
Ministry of Justice contractually, nor to make representations or other
statements which may bind the OPG or MOJ in any way via electronic means.

show quoted sections

Dear Office of the Public Guardian,

Please pass this on to the person who conducts Freedom of Information reviews.

I am writing to request an internal review of Office of the Public Guardian's handling of my FOI request 'Cost to Clients of Annual Surety Bonds'.

Thank you for your correspondence of June 22 2015. Some of the information you have supplied does not properly address the request for information and some of it directly contradicts information you have previously supplied.

I previously submitted a Freedom of Information Request (your Ref FOI-Apr-14-055/90502) in response to which you initially stated that you did not hold information on the total annual amounts of reimbursements ordered by the Court of Protection, but when I appealed you stated that that you did actually hold this data.

Now, in response to this FOI request, you again say you do not hold this data.

“OPG would be unable to publish the annual data on amounts paid out and received for security bonds. The bond is held between the deputy and the insurer - not OPG, information of this nature is kept within the business providing the service.”

(It is demonstrably untrue that OPG is unable to publish the annual data on amounts received for security bonds, since you have already published such data in response to a FOI request by someone else. When I submitted this FOI, I told you what information you have previously supplied and asked you to take note of this but you have not done so.)

The repetition of incorrect responses from the OPG is disappointing. Hopefully, OPG can redeem the situation by giving a careful and considered response to this request for a review.

WHAT STEPS DO THE OPG UNDERTAKE TO ENSURE THAT THEIR CLIENTS ARE PAYING A FAIR PRICE FOR ANNUAL SURETY BONDS?

Thank you for the information that this is determined by a competitive procurement exercise.

SPECIFICALLY WHAT STEPS, IF ANY, DO THE OPG TAKE TO ENSURE THAT THE INSURER DOES NOT MAKE EXCESS PROFITS DUE TO THE FACT THAT IN MANY CASES THE ACTUAL VALUE OF AN ESTATE IS LESS THAN THE NOMINAL SUM INSURED?

The answer given is incomplete. It states that “the process of competitive tender ensures that the preferred supplier pricing strategy offers the best deal for deputies.” The response does not explain how the competitive tender process can be truly competitive if all the parties involved do not have access to the same information. One party, the existing supplier, can base its response on the actual claims data which it holds whereas the other parties can only base their responses on actuarial modelling and theoretical assumptions of risk values. As a deputy, I need to know what steps the OPG takes to ensure that it achieves the best deal despite the asymmetric competition conditions.

The client for whom I am deputy paid £300 for a security bond this year, but her depleted capital is now half of the actual sum insured. Furthermore she did not receive the 10% discount which you now inform me she should have received. Because of this, 60% of the amount she paid was pure profit for the insurance company and this is over and above the actual (legitimate) profit that they would be properly entitled to.

The point here is that the magnitude of any ‘mismatch profit’ arising from the mismatch between the sums insured and actual capital cannot be addressed by actuarial modelling, since it is not predictable. It can only be addressed by knowledge of the claims data. Thus a competitive tender in which only one party has knowledge of the claims data cannot ensure that potential ‘mismatch profits’ are properly addressed by the competition process.

Your response states that “the deputy can apply to court to vary the amount of the bond”. It fails to mention that this process incurs a fee of £400. It is for this reason that deputies often find themselves paying a bond for an amount higher than the actual value of the estate that they are managing.

Your response also states that “Deputies are able to approach other providers if they can obtain better rates”. I have searched the internet and have failed to identify any other provider. I do not believe that this is a realistic option.

HAVE THE RATES FOR SURETY BONDS REMAINED FIXED SINCE THEIR INTRODUCTION OR HAVE THEY BEEN AMENDED AS THE RATE OF PAYOUT HAS BECOME APPARENT?

Thank you for your response. I was rather hoping that you could give an answer for a longer time scale, but your answer will suffice.

WHY ARE CLIENTS REQUIRED TO INSURE THE FULL AMOUNT OF THEIR ESTATE EACH YEAR WHEN THEY CAN ONLY LOSE THEIR ESTATE ONCE AND NOT ON AN ANNUAL BASIS?

Your response here does not provide the information requested. It appears to say no more than a premium is paid each year because it is an annual premium. My request for information was clearly not directed at the mechanics of payment. It was directed at the underlying rationale for annual payments (i.e. the underlying actuarial risk assumptions).

I could reformulate my request for information as follows.

Ignoring the small discount, why are surety bonds charged on the basis that the risk of a payout over a four year period is twice the risk of a payout over a two year period, which in turn is twice the risk of payout over a one year period?

If I pay car insurance on an annual basis, then for each new year I drive an extra 10,000 miles and encounter new potentially risky situations over and above the potentially risky situations that I experienced on the previous year. Despite this I can receive a no-claims discount of up to 70%. By contrast if I make an annual payment for a surety bond I am merely insuring the same risk as before but for an extended period. Unlike the car insurance, a new year does not introduce new risks other than the elapse of time, yet the no-claims discount is only 10% (and I personally have not received even that).

Thank you for the information that a bond for £21,000 can be secured by a one-off premium. From the internet I understand that the one-off premium is under 0.5% of £21,000. One of my motivations for raising this FOI is that the client for whom I act has already paid premiums totalling 1.25% of the sum insured but will still be obliged to pay future premiums at the rate of 0.25% per annum.

HAVE THE OPG CONSIDERED THE NEED TO PUBLISH ANNUAL DATA ON THE AMOUNTS PAID OUT AND RECEIVED FOR SURETY BONDS AND IF SO WHY HAVE THEY CONCLUDED THAT THERE IS NO BUSINESS NEED TO PUBLISH THIS DATA?

Your response is incorrect. It states that “OPG would be unable to publish the annual data on amounts paid out and received for security bonds”.

In fact OPG have already published annual data on the amounts received for security bonds in response to FOI-Mar-13-007. Furthermore, in response to FOI-Apr-14-055/90502, OPG have stated that the only constraint on supplying data on the amounts paid out for security bonds was the cost of retrospectively collating such data. (If in future the data were to be collated as it arises then the cost would be much less. Moreover, when a preferred supplier is next agreed then the supply of collated annual data by the supplier could be part of that agreement.)

In light of the information you have supplied to date I can make my question more specific. Why (according to your response to FOI-Apr-14-055/90502 ) is it that the OPG perceives that there is no business need to publish details of annual data on the amounts paid out and received for surety bonds, when the availability of such data is a necessary prerequisite for a competitive procurement exercise in which all potential new suppliers can compete on an equal basis with the incumbent supplier?

IN RESPONSE TO A PREVIOUS FREEDOM OF INFORMATION REQUEST THE OPG STATED THAT THEY DO NOT CURRENTLY COLLECT DATA ON BOND INSURANCE PAY OUT RATES. IF SUCH INFORMATION RESIDES SOLELY WITH THE CURRENT PREFERRED BOND PROVIDER HOW DO THE OPG ENSURE THAT POTENTIAL ALTERNATIVE BOND PROVIDERS ARE NOT CONSTRAINED IN THEIR OFFERINGS BY LACK OF ACCESS TO THIS INFORMATION?

Your response is that “Potential bond suppliers can apply to current suppliers with Freedom of Information requests”. This is incorrect. FOI requests do not apply to an organisation which is not a public organisation.

Your response also states “Business decisions for potential suppliers as to whether they wish to enter the market or not, cannot be influenced by information supplied by OPG”. I do not understand this statement. Deputies have a responsibility to achieve best value for their clients and your role is to support deputies to properly execute their duties. If you hold information which could be legitimately released and which could potentially achieve better value for deputies then you are under an obligation to release such information where practicable.

A full history of my FOI request and all correspondence is available on the Internet at this address: https://www.whatdotheyknow.com/request/c...

Yours faithfully,

Terry Johnson

Dear OPGInformationAssurance,

I recently wrote to request an internal review of the Office of the Public Guardian's handling of my FOI request 'Cost to Clients of Annual Surety Bonds'.

This request can be found here.

https://www.whatdotheyknow.com/request/c...

I have yet to receive an acknowledgement of my request for an appeal.

The deadline period for making an appeal is August 22.

Could you please, prior to that date, confirm that you have received my appeal.

Thank you,

Terry Johnson

OPGInformationAssurance,

Thank you for contacting the Office of the Public Guardian. This is an
automated response to confirm we have received your message to our
Information Assurance inbox. Our target is to acknowledge all enquiries
within 10 working days however we endeavour to respond to all e-mails as
soon as possible.

 

More information regarding Freedom of Information and Data Protection is
available on the website:  [1]https://www.gov.uk/browse/justice/rights or
[2]http://www.justice.gov.uk/information-ac...

 

Please be aware the Office of the Public Guardian is not able to provide
legal advice.

 

Thank you

 

OPG Information Assurance Team

 

 

 

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OPGInformationAssurance,

1 Attachment

Dear Mr Johnson
 
Please see attached my acknowledgment of your request for an internal
review, of your Freedom of Information Request.
 
Kind Regards
 

Laurie Judge I Knowledge & Information Liaison Officer I Office of the
Public Guardian

 

Correspondence - PO Box 16185 I Birmingham I B2 2WH

 

DX - 744440, Nottingham 51

 

I am not authorised to bind the Office of the Public Guardian nor the
Ministry of Justice contractually, nor to make representations or other
statements which may bind the OPG or MOJ in any way via electronic means

 

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OPGInformationAssurance,

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Dear Mr Johnson
 
Please see attached my response to your request for an internal review to
be conducted into OPG's initial response to your Freedom of Information
Request (FOI15-06-003).
 
Kind Regards
 

Laurie Judge I Knowledge & Information Liaison Officer I Office of the
Public Guardian

 

Correspondence - PO Box 16185 I Birmingham I B2 2WH

 

DX - 744440, Nottingham 51

 

I am not authorised to bind the Office of the Public Guardian nor the
Ministry of Justice contractually, nor to make representations or other
statements which may bind the OPG or MOJ in any way via electronic means

 

This e-mail (and any attachment) is intended only for the attention of
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is not permitted. If you are not the intended recipient, please destroy
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Dear OPGInformationAssurance,

Thank you for your response of September 11 to my appeal of August 13.

Your new response acknowledges that your original response was incorrect in a number of places but it still contains incorrect information and fails to properly address one of the requests for information. A response to a previous FOI of mine also contained incorrect information causing me to appeal. It is unclear whether OPG is not sufficiently professional in its approach to FOI requests or whether it is deliberately evasive or both.

Your new response states that “OPG does not hold information for the monies paid out for surety bonds, this information is held by the respective bond providers”. Yet I have told you at least twice that in response to my appeal regarding FOI-Apr-14-005/90502, there was a specific statement by you that “I can therefore confirm that the MoJ does hold the information you have requested. I am for that reason overturning the original decision.” I do not understand why you are now contradicting the outcome of that previous appeal.

You still have not answered the question as to why the client I represent has to pay for a surety bond annually. A client with a small estate can pay a one-off fee. This single fee could cover a period of forty years if he were declared to lack the mental capacity to manage his own affairs at age sixty and he lived to be a hundred. By contrast, a client with a larger estate would be required to pay 39 further annual fees (each a percentage of his estate). The situation where one client pays a single fee but another pays 40 annual fees is clearly unacceptable. There is no underlying actuarial basis for such a gross discrepancy. It is self evident that, for the second client, there should be an upper limit on the number of payments or the total cumulative percentage of his estate that is to be paid out.

I note that in your first response you state that clients are assured to receive good value for money because of the competitive tendering process that you conduct. Yet, in your second response you acknowledge that clients do not receive high no-claims discounts because security bonds do not operate in a competitive market place. There appears to be a contradiction here as whether clients are receiving good value or not.

Although OPG conducts a competitive tendering process for determining the cost of surety bonds, it seems from the responses given to me that OPG does not possess a sufficient grasp of actuarial science (the underlying theory of insurance) to properly evaluate and challenge the proposed pricing structure of surety bonds. The underlying principle is that each client should pay according to his risk (with an additional percentage to ensure a profit for the insurance company). I am a qualified statistician and it is clear to me that there is a cross subsidy from clients who survive for a sufficient time to make multiple bond payments to those who do not. It seems to me that OPG has not been able to challenge the existence or extent of this cross-subsidy because they do not have the expertise to even recognise that a cross subsidy exists.

The OPG does not use the information in its possession to monitor the amount paid out against surety bonds compared to the amount paid in. This indicates a naïve level of trust, which is inconsistent with current financial scandals (such as PPI). The OPG lay themselves open to claims of compensation should it subsequently become apparent that the amounts charged for surety bonds are highly excessive in regards to the amounts paid out. Deputies are required to provide annual accounts detailing monies received and paid on behalf the clients for whom they act. They have a legitimate expectation that the OPG should publish accounts showing the monies received and paid out with regard to surety bonds.

Yours sincerely,

Terry Johnson

PS Neither this FOI, my previous FOI nor other FOIs addressed to OPG of which I am aware come up when I search the MOJ FOI releases list.

OPGInformationAssurance,

Thank you for contacting the Office of the Public Guardian. This is an
automated response to confirm we have received your message to our
Information Assurance inbox. Our target is to acknowledge all enquiries
within 10 working days however we endeavour to respond to all e-mails as
soon as possible.

 

More information regarding Freedom of Information and Data Protection is
available on the website:  [1]https://www.gov.uk/browse/justice/rights or
[2]http://www.justice.gov.uk/information-ac...

 

Please be aware the Office of the Public Guardian is not able to provide
legal advice.

 

Thank you

 

OPG Information Assurance Team

 

 

 

This e-mail (and any attachment) is intended only for the attention of
the addressee(s). Its unauthorised use, disclosure, storage or copying
is not permitted. If you are not the intended recipient, please destroy
all
copies and inform the sender by return e-mail.

Internet e-mail is not a secure medium. Any reply to this message
could be intercepted and read by someone else. Please bear that in
mind when deciding whether to send material in response to this message
by e-mail.

This e-mail (whether you are the sender or the recipient) may be
monitored, recorded and retained by the Ministry of Justice. E-mail
monitoring / blocking software may be used, and e-mail content may be
read at any time. You have a responsibility to ensure laws are not
broken when composing or forwarding e-mails and their contents.

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Communications via the GSi may be automatically logged, monitored and/or
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