1 Dec 2020
Dear Lady Grover Member
As members will know, for several years now your Committee has been adjusting Lady Grover’s Fund subscriptions and Rules as well as our operating patterns and governance, to best protect our long-term ability to support our members.
Lady Grover’s, like many other Societies, has an ageing membership and it has not recently been able to attract new members in sufficient numbers. Membership numbers have reduced by about 20% over the last 5 years from a peak of around 3,200. Administration costs are also an issue for the Society; the administration has been outsourced to the Officers’ Association (OA), but this proved insufficient to meet the progressively more stringent regulatory requirements for professionally qualified executives in insurance. This meant that on Mike Vickery’s retirement we needed to recruit an independent Chief Executive who is approved by our regulators. Obviously that skill set (met by Stuart Bell’s appointment) does not come for free. As a result, our net costs have risen, and we can only continue this for a limited period.
Unless we address these issues, it is highly likely we would need to dissolve the Society in the short term to avoid an unplanned insolvency. This would leave our members without any cover (albeit there would be some residual financial compensation).
The combined challenges of a declining membership, the uncertain investment climate and unavoidable cost increases, mean that the measures taken thus far are not sufficient to guarantee our long-term solvency and operation. With the need to best support our members foremost in our mind, we have not been idle in the COVID lockdowns and have been exploring ways in which we can best move forward. We have invested in specialist professional advice since January and have been considering the implications of that in the early autumn. We are nearly ready to advise members on the best future path.
The specialist advice, endorsed by the Committee, is that we should seek a new status for the Society whilst remaining as a Friendly Society. Currently the benefits we offer are classed as insurance which requires us to be regulated by both the Prudential Regulation Authority and by the Financial Conduct Authority in much the same manner as sector giants like AVIVA and BUPA, albeit with a lighter touch.
We will be seeking, with your ultimate consent through an extraordinary vote next year, to offer future benefits on a discretionary, non-insured basis under a different section of the Friendly Societies Act 1992, establishing Lady Grover’s as a Discretionary Mutual Society. Our professional body, the Association of Financial Mutuals, has published an introductory note on Discretionary Mutuals.
This new status will enable us to dispense with the paid professional CEO and allow us to integrate with the OA more fully in due course. The OA would then be able, in turn, to provide us with full services including a Chief Executive for the Society and promoting our benefits to new members more effectively, and access to the much larger pool of membership of the OA itself. The OA, a registered charity, feels unable to do this while we remain a regulated provider of insurance.
What This Would Likely Mean for Members, and for Lady Grover
We have no plans to alter the current schedule of benefits to existing members and would continue to review them from time to time taking inflation into account. Whilst the benefits would become discretionary, your Committee remains utterly confident we can meet the likely claims demand with no need nor intention to reduce benefits whilst our reserves remained sufficiently strong. We have projected this will be the case for at least 5 years.
As part of a move to a Discretionary Mutual Society, and on the necessary vote of approval from members, we would make provision for a one-time distribution of a proportion of our reserves to existing members (those whose applications were accepted on or before today, 1st December 2020) in recognition that their benefits would no longer be guaranteed by law. Our current financial projections assume that this would amount to about 25% of our reserves. Those members of the Committee who are also Members of the Fund have agreed to waive their share of the distribution to avoid any perception of a conflict of interest.
Our proposed change of status would lift the regulatory financial burden and would enable us to extend significantly and with greater confidence the period for which Lady Grover’s would remain able to offer the cover it currently provides to you all. As a Discretionary Mutual we are advised that our liability for Insurance Premium Tax would disappear which, particularly for the older age groups, would benefit the Society as it allows us to retain all of your subscriptions in the asset pool.
In addition to this major change in the status of the Society, we are considering how we can further adjust our subscriptions to encourage more and younger members to join, thus strengthening the base of support for our older members. Members were supportive of our recent adoption of subscription rates linked to age and so we will be building on this by looking to reduce further the rates for the younger members that we need to attract. Whilst our annual claims total will remain a factor determining subscription levels, there is no plan in the near term to increase subscriptions for any member.
We should stress that the future of the Society will continue to depend on us attracting new blood; and your Committee will need to monitor our success in this regard. We anticipate allowing a three-year period before the first review.
The Immediate Way Ahead
We have now informed the regulators of our intention to seek your approval for this change in status, and it is possible that our plans will evolve in response to their replies and resulting ongoing professional advice. We would also be mindful of any comments received from members in response to this newsletter, noting that this is not a formal presentation of the plans, but an early indication of them.
We plan to bring a formal proposal to you in 2021, and then to ask you to vote on it.
In the meantime, please do not hesitate to contact either of us via the Lady Grover’s email, or by post with comments and questions. We will not plan to answer them all individually but will undertake to sweep up the answers to your questions in the proposal. If there any unique queries not so swept up, we will of course get back to you directly after the proposal has been distributed.
Stuart Bell MA FIA
CEO, Lady Grover’s Fund
John Gower CB OBE
Chairman, Lady Grover’s Fund