I facilitated the Special Interest Group for annuities during the 11th annual Novarica Insurance Technology Research Council meeting. The discussion covered a range of topics, touching upon upcoming challenges and opportunities for annuities insurers, including:
Effects of New Capital in the Market
The annuity business is capital-intensive, with insurers being encouraged to regularly make hedging decisions against various guarantees reflected in their contracts. A significant amount of capital is also required to be held in reserve so that future benefits can be paid. This capital requirement has caused some changes among carriers, relating to things like prioritizing certain distribution channels over others, reviewing product types, and engaging in M&A activities. Companies have capital and want to use it, leading to decisions about buying the right insurance company with a great investment group or investment minded groups looking to buy the right insurance company. The capital constraints may, for some carriers, continue to “throttle” certain types of product growth.
Distribution Challenges
Annuities carriers are needing to address distribution channel management as they look to expand markets. Between regulatory concerns, low interest rates, and changing market demands, distribution channels have shifted a bit. Carriers are increasingly looking for distribution expansion and many are turning to banks and broker dealers. Sales numbers, specifically for fixed-indexed annuities, continue to increase for banks and broker dealers. What used to be an insurance agent-centric sales industry is shifting towards advisors selling more products and services, which increases the need and value of technology like data aggregators, automation, self service, and educational tools with multi-channel access. As one CIO put it, “shelf space is not easy to get even if we [already] do business.” Concurrently, many distributors continue to look to reduce the number of selling agreements they have further constraining shelf space. Concurrently, many distributors continue to look to reduce the number of selling agreements they have further constraining shelf space.
Business Architecture
Creating a successful business architecture emerged as a concern among insurers, as a leadership team needs to include members from both the IT and the other operational business units within a company. It is important to focus on business relationship management; as one CIO noted, “process and collaboration with business and the role of bringing it all together is critical.” More and more carriers are implementing Agile as a deployment methodology, which requires direct business participation and buy-in from executive leadership that then trickles down to permeate enterprise-wide decision-making and prioritization.
For more information on trends in annuities, see our recent report on Business and Technology Trends: Individual Annuity. For more on our research and advisory work with annuities writers, please contact us at [email protected].
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