Tag: insurance

Driving Sustainable Change: A Look into the Insurance Industry’s Commitment to Sustainability | Blog

Embracing sustainability in the insurance industry is not just a choice, but a necessity for a resilient future. By integrating Environmental, Social, and Governance considerations into their practices, insurers can mitigate risks and foster long-term value for customers, shareholders, and the planet.

Sustainability has been a pivotal issue for years, but the recent conditions induced by the storm of the COVID-19 pandemic’s economic effects and the escalating climate change impacts across the world have increased pressure on industries across the globe to be aware of their Environmental, Social, and Governance (ESG) footprint. The financial services sector has not been behind in the race to drive the global sustainability agenda, largely driven by the BFS industry in the past. However, over the past few years, the insurance industry, being a key player in this sector, has also recognized the importance and urgency of embracing various practices in its operations to contribute to a sustainable planet. By integrating sustainability into various aspects of their operations, insurers are not only mitigating risks associated with climate change and environmental degradation but also fostering long-term resilience and contributing to a more sustainable future. This blog will explore how the insurance industry is driving the sustainable change through technological investments, product innovation, business processes, and disclosures.

With the increasing pressure from regulatory authorities, customers, employees, shareholders, and other market participants, insurance enterprises are striving to incorporate various aspects of sustainability into their business. Insurance firms are embracing sustainable change in a variety of ways, including through their investments, underwriting choices, and the structure of their insurance products, as well as using their own office buildings and making the vehicle fleet available to executives and staff. By integrating ESG considerations into their risk management, product design, internal operations, long-term strategies, and workforce management, many insurance firms have already started their journey toward becoming purpose-driven organizations and have begun to integrate sustainability with their core businesses.

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Exhibit 1: A look at various internal and external ways to incorporate sustainability

Incorporating sustainability in workforce management and internal processes has been the first step in creating sustainable change for most insurance enterprises. However, with the high awareness and responsibility in the play, insurers are now also increasingly moving toward adding sustainable insurance products in their catalog that address environmental and social challenges to become champions in the maturity continuum [Exhibit 2]. For instance, insurers offer green insurance policies at lower premium rates to incentivize environmentally friendly practices and offer coverage for renewable energy installations, energy-efficient buildings, and sustainable agriculture. Similarly, parametric insurance products provide rapid and efficient payouts in the event of natural disasters, helping communities recover faster and build resilience against climate change impacts. These innovative products not only protect clients against risks but also encourage sustainable change behaviors and contribute to a greener future.

Another impactful way in which insurers can increase their top line while promoting sustainability is by incorporating sustainability criteria into their investment policies, divesting from environmentally harmful industries, and investing in renewable energy projects. These actions not only align with the insurers’ values but also offer potential financial returns while mitigating climate-related risks.

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Exhibit 2: Sustainability maturity continuum for insurance enterprises

Insurers need to prepare for sustainable change with the right technology and data architecture to achieve their sustainability goals, maintain transparency, and stay ahead of the regulatory disclosures requirements.

Insurers have been leveraging consulting partners to help them define their roadmap and strategies to achieve their sustainable agenda. But one of the biggest challenge  insurers face in this pursuit is the lack of robust data architecture to provide an understanding of the current ESG footprint, such as carbon emissions, energy consumption, energy mix, and employee well-being. As more insurer enterprises move toward becoming sustainability champions and provide transparency and disclosures to the regulatory bodies and other stakeholders, there will be increased opportunity for data and analytics providers to partner with the insurers to help them align their insurance portfolios with sustainability goals and manage ESG-related risks.

Additionally, collaboration with technology and IT service providers can help insurers build new products and solutions by leveraging cutting-edge technologies such as data analytics, AI, cloud computing, AR/VR, and blockchain that can boost the sustainability agenda along with unlocking fresh opportunities for generating revenue. Moreover, using technologies such as green/sustainable cloud to minimize operating expenses and carbon footprint while optimizing energy demand, predictive/prescriptive maintenance of equipment using IoT to limit energy and materials waste, and processing claims efficiently and sustainably by uploading photos and videos of damage through an AR/VR interface are some of the ways insurers can leverage technology to achieving their internal sustainability initiatives as well.

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Exhibit 3: Utilizing cutting-edge technology to drive sustainable change

The insurance industry has recognized the urgent need to embrace sustainability and is taking significant steps to drive positive change. By integrating sustainability into investments, leveraging technological innovation, offering sustainable products, adopting environmentally responsible business processes, and promoting transparency through disclosures, insurers are playing a crucial role in addressing global sustainability challenges. As the industry continues to evolve, the integration of sustainability practices will become even more critical, enabling insurers to manage risks effectively, foster resilience, and contribute to a more sustainable future for all.

For more details on how the insurance industry is moving toward driving sustainable change and insuring a sustainable tomorrow, please refer to our report Insuring a Sustainable Tomorrow: How the Insurance Industry is Driving Positive Change.

The State of Insurance GBS: Igniting Innovation, Expanding Scope, and Driving Talent Strategy | Virtual Roundtable

VIRTUAL ROUNDTABLE

The State of Insurance GBS: Igniting Innovation, Expanding Scope, and Driving Talent Strategy

June 15, 2023 |
8:30 AM EDT | 6 PM IST

Today’s insurance GBS organizations have become strategic partners for enterprises. Are you fully aware of the exceptional opportunity for insurance GBS organizations to deepen core capabilities, add new work to scope, and accelerate transformation initiatives, all while elevating their position as valuable solution partners?

Join this virtual roundtable discussion to participate in conversations with our expert analysts and your peers to develop a deeper understanding of insurance GBS organizations’ future priorities, opportunities, and strategies to drive more value for enterprises.

We’ll explore the insurance GBS outlook on:

  • Services scope expansion
  • Role elevation
  • Role in performance management
  • Talent and location strategy
  • Transformation

Who should attend? 

  • GBS leaders
  • GBS strategy leaders
  • GBS site leaders

Virtual Roundtable Guidelines

The only price of admission is participation. Attendees should be prepared to share their experiences and be willing to engage in discourse.

Participation is limited to enterprise leaders (no service providers). Everest Group will approve each attendance request to ensure an appropriate group size and mix of participants. The sessions are 90 minutes in duration and include introductions, a short presentation, and a facilitated discussion.

Rohitashwa Aggarwal
Nikhil Malhotra
Shivani Singh

Transforming the Game: How Consolidation is Revolutionizing the Insurance Brokerage Industry | Blog

Readily available capital and low-interest rates made the past few years ideal for the insurance brokerage industry to consolidate in response to increased competition, changing customer expectations, and other challenges. Merged insurance intermediaries can partner with business process service (BPS) providers to optimize processes, manage risks, enhance data analytics, and improve customer experience, among other benefits. Read on to learn more.    

Reach out to us directly for questions or to learn more.

The insurance brokerage industry went through an inflection point last year. A confluence of factors happening simultaneously created a perfect recipe for consolidation. These included large quantities of readily available capital, low-interest rates, highly valued broker stocks, all-time high valuation multiples, and the challenging insurance market.

The deal frenzy of 2021 slowed towards the end of 2022, with less than $2 billion of deal value announced and no large transactions in the last six months of the year. Despite this, insurance brokerage transactions trumped the activity. More than 90% of the overall insurance deals were in the brokerage space. In terms of both the volume of transactions and the multiples being paid, the consolidation rate in the re/insurance broker industry has accelerated.

Let’s take a look at the following dominant broker groups influencing the insurance brokerage industry:

  1. Global brokers – Large multinational insurance brokers who typically operate in multiple countries and offer a wide range of insurance products and services
  2. Private Equity (PE)-backed brokers – PE firms provide the necessary capital for mergers and acquisitions
  3. Family-owned brokers – Small to mid-sized insurance brokers that are family owned and operated

Drivers and challenges leading to consolidation

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Competition

  • Increasing competition: The insurance intermediary industry is becoming increasingly crowded, with new players entering it all the time, further fragmenting the market. These new players often can offer better services, lower prices, and more innovative solutions than traditional insurance intermediaries
  • Market share growth: Insurance intermediaries can inorganically boost market share with additional capabilities and market penetration in new geographies by consolidating with another firm. They also can benefit from customer base growth

Capabilities

  • Technological advancements: The industry’s recent drive towards digital transformation by implementing new technology and platforms is forcing intermediaries to seek funds to invest in digitization or lose against better-capitalized intermediaries
  • Economies of scale: Insurance intermediary consolidation can spread fixed costs over a larger number of policies, resulting in lower average costs per policy. It also can provide intermediaries with increased bargaining power with insurers, provide cross-selling and up-selling opportunities, and help increase brand and mind share
  • Service offering diversification: Consolidation allows insurance intermediaries to expand and diversify their services and product lines. Intermediaries can attract new customers by acquiring another brokerage that provides different products or services. This keeps intermediaries relevant and competitive in a dynamic market

 Complexity

  • Regulatory pressure: Consolidation can help smaller intermediaries remain up to date on increasingly complex risk management requirements that would be difficult for them to do by themselves
  • Inefficient processes and people: By joining forces, smaller firms can improve process efficiencies and combine their talent pools. Consolidation also can help large entities better manage operations

 Customer

  • Changing customer expectations: Consumers increasingly demand customized and convenient services and anticipate an omnichannel experience. Insurance intermediaries that cannot meet shifting consumer expectations risk losing clients to rivals who can.

Impact of consolidation on stakeholders

Insurers

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Customers

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Routes to consolidation

Insurance intermediaries can take multiple paths to consolidate depending on their strategy, such as:

  1. Mergers & Acquisitions: This is the preferred route for consolidation where two or more intermediaries enter into an M&A to achieve economies of scale, expand into new markets, and gain access to the latest tools and technologies. Different forms of M&A pursued are horizontal mergers between intermediaries from the same market, vertical mergers between intermediaries with different capabilities, and cross-border M&A
  2. Strategic alliances and joint ventures: Insurance intermediaries can pursue strategic alliances or JVs under many forms, such as distribution agreements, co-marketing agreements, and shared service agreements to effectively share resources and expertise while reducing risks and increasing market power
  3. PE investments: In recent years, PE firms have increased their involvement in this industry as they look to invest in dependable, cash-generating companies with room for expansion. PE companies can assist insurance intermediaries seeking strategic acquisitions and expansions while also providing access to finance and experience

Many intermediaries also take an independent route and pursue organic growth by investing in digital transformation initiatives to achieve unparalleled scale and efficiency.

Key players in the insurance intermediary consolidation space

The insurance intermediary market is highly competitive and dynamic, with many players pursuing different strategies to achieve their growth objectives. Here are some of the active players in the consolidation space:

  • Marsh & McLennan: In 2019, the company acquired Jardine Lloyd Thompson Group, a leading UK-based insurance intermediary, in a deal valued at $5.6 billion. The company also has announced the acquisition of Focus Insurance, offering tailored personal insurance programs.
  • Gallagher: Gallagher has pursued a growth strategy focused on M&A and has completed over 500 acquisitions since 1984. Gallagher started 2023 with an acquisition of Dublin-based commercial and personal lines broker First Ireland, making it one of Ireland’s largest brokers.
  • Hub International: The company also is focused on growth through M&As, and has made more than 600 acquisitions since its founding in 1998. In 2020, Hub acquired the assets of The Insurance Exchange, Inc., a leading insurance brokerage firm in California.

How intermediaries can leverage insurance service providers

Intermediaries face increasing pressure to reduce costs, increase efficiency, and deliver better customer experiences. By partnering with BPS providers, they can achieve these goals. BPS providers can deliver policy administration, claims processing, customer service, data analytics, and other services, as illustrated below:

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In selecting a BPS provider, intermediaries need to evaluate the service provider’s capabilities by carefully considering their expertise, experience, cost arbitrage, flexibility, security, business continuity, delivery footprint, talent maturity, technology, infrastructure, governance approach, and client-centricity.

Everest Group can help evaluate these capabilities through its proprietary PEAK Matrix® assessment and impartially rank service providers as leaders, major contenders, and aspirants, as well as provide expert commentary to help enterprises make better-informed decisions.

To discuss insurance brokerage industry trends, please reach out to [email protected] and [email protected], and stay updated by accessing Everest Group’s latest research on Insurance Business Processes.

Future Insurance Technology Trends: A Closer Look at the Need for Building Humanized Insurance Experience, Data-driven Intelligent Operations, and SaaS Integration | Blog

From the many thought-provoking conversations that Everest Group analysts engaged in at Formation ’23, three main themes emerged about the future of insurance technology. These priorities are: integrating a humanized and people-centric approach, leveraging data to make intelligent decisions, and strongly emphasizing the Software-as-a-Service (SaaS) ecosystem. In this blog, we will take a closer look at these growing trends and explore their potential impact on the insurance industry.

Contact us directly for more insights.

Formation ’23 on May 8-10, hosted by Duck Creek Technologies (DCT), provided an excellent opportunity for Everest Group analysts to engage in exciting conversations with the community of insurance enterprise leaders, technology providers (from DCT and its solution partners), system integrators, consulting firms, and other analysts, about what will drive the next era in insurance.

Based on the dialogue we heard, the following three themes stood out to our team:

  • Building humanized and consistent experience will be the key to success

Delivering high-quality personalized customer experience is taking center stage in the insurance industry’s current transformation as carriers move from their traditional role as loss payors to becoming empathetic insurers and guardians for customers.

Digital experience platforms, distribution management systems, and smart communication platforms are becoming increasingly relevant to streamline operations, provide seamless and consistent digital experiences, and engage customers more effectively.

Data will play an important role here by equipping insurers with the right information that they can use to personalize and humanize the experience for individual customers. Interestingly, DCT also gave us a preview teaser of its new product – Elea, an AI-powered and empathy-driven chatbot slated for release later this year.

  • Infusing data and intelligence into insurance operations is the industry’s top priority

Data-driven intelligent decisions are a key priority for the industry. As the insurance industry moves toward AI-powered workflows, infusing data and having standard data models at a value chain and workflow level will be a major demand.

We found it interesting to see various point solutions offered by technology providers, such as CogniSure’s AI platform, which helps automate the underwriting process by converting structured and unstructured data to improve efficiency and effectiveness.

We also heard many discussions about early use cases of Generative AI (GAI) for operational tasks (emails, presentations, etc.), GAI-powered chatbots, and writing codes. But concerns remain about using this fast-growing technology in core operations.

  • SaaS sprawl requires attention

 SaaS sprawl was another theme that dominated conversations. While the point solutions across the value chain come with the benefit of speed to market and bridge the capability gap on the top of core systems, integration across these remains a concern as these solutions often don’t talk with each other.

Enterprises leveraging a wide number of these point solutions now see the need for digital rationalization. Most of these software platforms have evolved and added new functionalities. But enterprises are not taking advantage of the latest features because they are either unaware of these benefits or because they are paying for other software with the same purpose. This leads to duplicate costs and less value.

These conversation themes and focus areas resonate well with what we expect from the industry in this environment, but we felt some upcoming trends did not get enough attention from the community – low code/no code technology being the most prominent one.

As always, Formation ’23 was a great experience for Everest Group to interact, learn and exchange thoughts and points of view with industry leaders about the future. The fun atmosphere in Orlando, Florida, complete with country music, delicious food, and drinks, added to the interesting conversations, resulting in lasting memories.

To discuss these insurance technology trends in more depth, please contact Ronak Doshi and Roma Juneja, who attended this insightful event.

Continue learning about insurance technology trends in this blog, Uncovering a Massive Insurance Industry Cloud Opportunity.

The Role of Insurance Intermediaries in the Digital Age: Challenges, Opportunities, and the Future | Blog

As the insurance industry undergoes a paradigm shift post-pandemic, digital transformation can improve customer experience and engagement. Insurance intermediaries have an exciting future ahead if they can successfully adopt Artificial Intelligence (AI), mobile apps, big data, and analytics to better understand their customers and provide personalized products. Partnering with service providers will help insurers overcome barriers and improve efficiencies. Read on to learn more.

Reach out directly to discuss or for more information.

Insurance intermediaries (agents and brokers) play a crucial role in the industry by helping customers find the best insurance policies to suit their needs and connecting insurance companies to potential customers.

The overall intermediary market is vast with nearly 500,000 licensed intermediaries registered in the US, according to the National Association of Insurance Commissioners (NAIC), and 12,000 insurance brokers registered in the UK. The market is valued at more than $130B in the US and £13B-plus in the UK, as per IBISWorld and the UK Financial Conduct Authority. McKinsey estimates that 84% of sales in US property and casualty and 90 percent of US life policies go through agents or brokers.

This industry is undergoing a paradigm shift post-pandemic due to the increased adoption of digital direct-to-consumer (D2C) channels, remote work, and other trends. The intermediary business is evolving to maintain its growth momentum with rapid execution of quote to bind, hyper-aware consumers, increased competition, and declining margin profile.

Digital transformation is taking center stage on the intermediary side of business due to factors like the increased availability of customer data, demand for customized products, the rise of low-code/no-code solutions, increased use of self-serve options, increased use of D2C channels, rise of embedded and usage-based insurance, telematics, analytics, and advanced risk management solutions.

Role of service providers in helping intermediaries overcome barriers

While these changing industry dynamics push intermediaries towards adopting digital transformation, they still face the following barriers:

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  • Legacy systems and processes: Insurance intermediaries have used outdated systems and procedures for many years, and the migration to modern systems is further delayed by a lack of funds
  • Resistance to change: Some insurance intermediaries are unwilling to adopt innovative technology and business models or lack the right knowledge and experience with digital technologies
  • Resource constraints: Putting modern technologies or business models into practice may require a substantial cash commitment or access to specialist skills that are unavailable with today’s talent crisis
  • Regulatory constraints: Various regulations like personal data protection, sales standards, and solvency requirements limit intermediaries’ flexibility and ability to innovate
  • Data security and privacy concerns: Intermediaries must safeguard sensitive client information and adhere to several data security and privacy laws
  • Shifting consumer expectations: Insurance customers demand more information than ever before and expect customized products through their preferred channel (digital, in-person, sales partner), better user experiences, shorter turnaround times, and digital touchpoints for the end-to-end process

Competition and customer retention also hamper the growth of intermediaries.

Service providers can help intermediaries overcome these barriers as illustrated below:

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Digital technologies transforming insurance intermediaries 

The following technologies can help intermediaries enhance the services they provide to customers:

  • Digital onboarding with interactive workflow and digital policies: The entire intake process should be digitized, reducing the intervention needed by intermediaries and showing customers the complete user journey from bind to quote. Insurance policies that allow electronic signatures also will accelerate the overall process.
  • Artificial Intelligence (AI) and Machine Learning (ML): Applying AI/ML for chatbots, fraud detection, personalized recommendations, and other processes can help insurance intermediaries enhance customer experience, boost efficiency, and offer more customized services.
  • Mobile technology and User Experience (UX)/User Interface (UI): To meet customers’ increasing desires to access services on the go, intermediaries need to provide access to policies and the ability to submit claims and pay bills available via mobile devices and applications.
  • Big data and analytics: Leveraging data and analytics will help intermediaries better understand their customers and provide more personalized recommendations. For example, agents may use data on a customer’s driving habits to provide personalized auto insurance recommendations.
  • Real-time insurance quotation and comparison tools: Using innovative technologies that automate the insurance underwriting process will allow intermediaries to deliver real-time insurance quotes and pricing comparison tools. Digital tools leveraging algorithms and data analytics will help agents/brokers instantly evaluate risk factors and determine
  • Claims management: Insurance intermediaries can play a key role in automating the claims management process by helping customers with online claims filling systems, automated claims triage, automated claims adjustments, and real-time communication.

By partnering with service providers or using third-party platforms and tools to accelerate their use of modern technologies, insurers have the potential to achieve large-scale cost savings and headcount reduction benefits. Depending on the adoption, insurers can achieve cost arbitrage generating a Return on Investment (ROI) of 1.5 to 3 times.

Intermediary of the future

Insurance intermediaries’ future likely will be shaped by a combination of technological advancements, changing consumer behaviors and expectations, regulatory developments, and economic conditions.

Intermediaries need to adapt to the following five changing trends to thrive:

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  1. Embrace digital innovations: The Internet of Things (IoT), AI/ML, blockchain, big data analytics, and other innovations increasingly are becoming mainstream and changing the way intermediaries operate and evolve.
  2. Increase personalization: Data analytics can help intermediaries better understand their customers to provide more personalized recommendations and, in turn, find opportunities to cross-sell and upsell. Insurance plans must be customized to address clients’ unique needs and risk profiles.
  3. Prioritize risk management: By gaining insight into customer risks, intermediaries can offer proactive risk management services. They should also identify emerging risks, such as cyber threats, and collaborate with clients to develop comprehensive risk management strategies and insurance solutions.
  4. Shift to a consultative model: Insurance intermediaries must evolve from their traditional focus on selling policies into offering advice and guidance as consultants. They need to become trusted advisors, providing insights and recommendations to customers, such as risk management, insurance policy options, and financial planning since insurance is often a crucial part of an individual’s financial plan.
  5. Integrate with the ecosystem: To stay competitive and meet evolving customer expectations, agents/brokers have to bundle services and offer financial planning and risk management in addition to traditional insurance products in a seamless customer experience.

To discuss digitization opportunities for intermediaries, please reach out to [email protected] and [email protected], and stay updated by accessing our latest research on Insurance Business Process Services.

Life and Annuities (L&A) Insurance BPS and Third-Party Administrator (TPA) PEAK Matrix® Assessment 2023

Life and Annuities (L&A) Insurance BPS and Third-Party Administrator (TPA) PEAK Matrix® Assessment

The global Life and Annuities (L&A) insurance industry has recovered from the pandemic, but it now faces macroeconomic uncertainties. Going forward, insurers will prioritize cost reduction and may cut back on discretionary spending to save costs. However, they are likely to continue their digital transformation initiatives because of the long-term benefits they offer in terms of process improvements and efficiency gains.

Given the situation, insurers are expected to use outsourcing as a popular cost mitigation strategy, which provides ample growth opportunities for providers. In fact, providers are developing end-to-end capabilities to advance themselves for larger deals as insurers pursue more enterprise-wide transformation. Additionally, insurers face challenges such as evolving customer preferences, product innovation, and legacy systems, which increase the demand for support in areas such as actuarial transformation, underwriting streamlining, and new product launch capabilities. Providers are increasingly investing in these growth areas to differentiate themselves in the market and stay ahead of the competition.

LATPA PEAK 2023

What is in this PEAK Matrix® Report

In this report, we assess 23 L&A insurance Business Process Services (BPS) providers and position them on Everest Group’s PEAK Matrix® framework as Leaders, Major Contenders, and Aspirants. Each provider profile provides a comprehensive picture of its vision, delivery capabilities, market success, and key strengths and limitations. The report also examines the global L&A insurance BPS and Third-party Administrator (TPA) services market and its provider landscape. The study will assist key stakeholders, such as insurance enterprises, service providers, and technology providers, understand the current state of the L&A insurance BPS/TPA market.

This report features 23 L&A service provider profiles, and includes:

  • Providers’ relative positioning on Everest Group’s PEAK Matrix®; for L&A insurance BPS and TPA
  • Providers’ market impact
  • Evaluation of providers’ vision and capabilities across key dimensions

Scope:

  • Industry: L&A insurance BPS/TPA
  • Geography: global
  • In this report, we only cover vertical-specific L&A operations and have omitted horizontal business processes, such as Finance and Accounting (F&A), Human Resources (HR), procurement, and contact center

DOWNLOAD THE FULL LIFE AND ANNUITIES (L&A) INSURANCE BPS AND THIRD-PARTY ADMINISTRATOR (TPA) PEAK MATRIX® ASSESSMENT 2023 

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What is the PEAK Matrix®?

The PEAK Matrix® provides an objective, data-driven assessment of service and technology providers based on their overall capability and market impact across different global services markets, classifying them into three categories: Leaders, Major Contenders, and Aspirants.

LEARN MORE ABOUT Top Service Providers

Pension Risk Transfer: The Next Greenfield Opportunity in Retirement and Insurance | Blog

With pension risk transfer (PRT) activity hitting post-pandemic record highs of $53 billion in North America market volume last year, this growing market represents a massive untapped opportunity for technology and services providers to leverage their retirement and pension expertise to deliver new solutions. Read on to learn about the possibilities this option opens. 

Even with the general shift towards defined contribution (DC) plans, defined benefits (DB) assets still contribute to the majority of retirement Assets Under Management (AUM) in the US. However, defined benefit plan providers often struggle to guarantee the security of retirement benefits because of the following risk factors:

  • Unpredictable investment returns due to variable interest rates, market volatility, and the geopolitical environment
  • Volatile interest rates
  • Increasing life expectancy and longer service tenure of plan participants
  • Underfunded pension liabilities

To shield against this unpredictability, plan sponsors are adopting pension risk transfer strategies to guarantee retirement and pension benefits for DB plan members. Under this approach, DB plan providers transfer their entire/partial pension liabilities to other firms, usually a life insurance firm, to remove their obligation to pay plan participants guaranteed retirement income or post-retirement benefits.

In the past four years, PRT transactions have increased as DB plan providers seek to de-risk huge pension liabilities. Many large and mid-sized plan sponsors are hedging these risks through PRT transactions with the intent of transferring or terminating existing DB plans.

The pension risk transfer market peaked in 2022 as retirement plan sponsors urgently felt the need to secure pension benefits in an increasingly uncertain world following the pandemic.

The growth momentum is expected to continue due to favorable transaction terms for sponsors and insurers’ continued desire to de-risk pension assets. North America accounted for approximately two-thirds of global PRT sales (US$60 billion) in 2021 and grew by 40% in 2022. In both these years, almost half of the PRT transactions were near US$1 billion or more, according to the LIMRA Secure Retirement Institute.

Pension risk transfer types

The following two PRT transactions are most prevalent in the market:

  1. Buy-in – The insurance firm takes the liability of benefit payments for plan participants to the plan trust. The sponsor retains fiduciary and administration obligations and holds the pension plan contract as an asset on its balance sheet
  2. Buy-out – The insurance firm takes the liability of benefit payments for plan participants entirely and all of the administrative responsibilities. This is the most common transaction type, as the entirety of pension obligations are transferred

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Implications of pension risk transfer for services and technology providers

Transferring pension liabilities to an insurer comes with many challenges. Providers have several opportunities to support insurance enterprises, recordkeepers, plan sponsors, and third parties involved in such transactions in the following key areas:

  • Technology systems: Insurers need support to transform their technology landscape to meet the increasingly complex market requirements, including data migration, fund transfer, benefits administration, contracts and provisions management, and pension administration for the full participant lifecycle.

Varying technology maturity levels among recordkeepers, insurers, and plan sponsors presents a big challenge. A service provider or platform provider’s solution can help with the entire process of transferring liabilities (sometimes along with plan termination) and all the relevant data, provisions, rules, funds, and critical participant details. This presents an opportunity for system integrators (SI) and platform providers to work together to efficiently manage the process lifecycle

  • Strategic partnerships: As this business achieves scale, insurers will strategically view this as an alternate revenue stream. Insurance firms can partner with technology and service providers to enable user-friendly onboarding, payment/annuity processing, automated query resolution, and analytics-based PRT transaction pricing, as well as building newer underwriting and actuarial capabilities for deciding PRT transactions’ premiums
  • Regulatory compliance: Technology and service providers need to assist insurers and sponsors in complying with the changing regulatory environment, varying state and regional taxation laws, and accounting nuances of different transaction types such as buy-ins and buy-outs
  • Cyber security: The significant amount of sensitive participant data being exchanged between recordkeepers, insurers, and sponsors’ systems poses substantial security risks. With the varying complexities and formats for different plan sponsors and record keepers, traditional file formats of participants’ data are difficult to maintain. Technology and service providers can securely manage the migration of pension data from on-premise systems to cloud, on-prem systems to other on-prem systems, and between different cloud environments

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With the transaction volume increase in the PRT market expected to continue, technology and service providers have many opportunities to seize this underserved industry segment by leveraging their existing business expertise in the retirement and pension domain to build new solutions catering to this market.

To discuss pension risk transfer further, please reach out to [email protected] and [email protected].

Learn about the evolving digital requirements for the insurance industry in the blog, Reinventing the P&C Insurance Claims Value-Chain: Moving to the Claims of the Future Vision.

Group Life Policy Administration Systems (PAS) Products PEAK Matrix® Assessment 2023 – North America

Group Life Policy Administration Systems (PAS) Products PEAK Matrix® Assessment – North America

Group life insurers are increasingly looking to modernize their core platforms to address the limitations of their legacy core systems and drive transformation to future-proof their IT infrastructure. They are seeking cloud-ready platforms that can enable extensive API integrations and provide out-of-the-box functionalities for rapid product configurations.

In response, technology providers are developing deep expertise across various product types and demand themes. They are expanding their talent pools, building configurable solutions to address key concerns around on-budget and on-time implementations, and supporting insurers to become digitally enabled.

PAS PEAK 2023

What is in this PEAK Matrix® Report

In this report, we assess 15 technology providers featured on the Group Life Policy Administration Systems (PAS) Products PEAK Matrix® Assessment 2023 – North America. Each provider profile provides a comprehensive picture of its service focus, key Intellectual Property (IP) / solutions, domain investments, and case studies.

This report examines:

  • Provide an overview of the group life PAS market, including its size, growth, and drivers
  • Assess 15 technology providers that focus on North America
  • List the characteristics of Leaders, Major Contenders, and Aspirants
  • Examine providers’ key strengths and limitations

Scope:

  • Industry: insurance
    Geography: North America
  • The assessment is based on Everest Group’s annual RFI process for year 2022-23, interactions with leading group life PAS technology providers, client reference checks, and an ongoing analysis of the North American insurance technology market

DOWNLOAD THE FULL GROUP LIFE POLICY ADMINISTRATION SYSTEMS (PAS) PRODUCTS PEAK MATRIX® ASSESSMENT 2023 

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Future Insurance Technology Trends: A Closer Look at the Need for Building Humanized Insurance Experience, Data-driven Intelligent Operations, and SaaS Integration

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The Role of Insurance Intermediaries in the Digital Age: Challenges, Opportunities, and the Future

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The PEAK Matrix® provides an objective, data-driven assessment of service and technology providers based on their overall capability and market impact across different global services markets, classifying them into three categories: Leaders, Major Contenders, and Aspirants.

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Banks Expected to Increase Risk Technology Budgets after March Crisis | In the News

Regional banks are likely to upgrade their risk management technology as the recent problems in the industry raise concerns about all elements of their risk positions, experts say.

Most regional and super-regional banks previously sought to spend as little as possible on risk management technology to meet minimum regulatory and compliance requirements, said Ronak Doshi, Partner at Everest Group. However, over the past six weeks, banks have felt pressure from their boards, employees, and other stakeholders to prioritize risk assessment.

“Banks are suddenly saying, ‘Risk management is a key component of who we are as a bank,'” Doshi said. “It’s not just the cost of doing business. That’s business.”

Read more in AMERICAN BANKER.

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