Variable annuity policyholder behavior could be considered tough to take the pulse of. Clients who in the 1990s purchased the products because of their tax advantages are now keen on them because of their living benefit guarantees. All of this, coupled with the residual impact of the global financial crisis and fluctuating and fickle advisor temperament, make policyholder data difficult to comprehend and act upon.
Lincoln Financial Group (Lincoln) recently announced that it is collaborating with global professional services firm Towers Watson and global management firm Oliver Wyman to implement two advanced analytic modeling techniques in order monitor and adapt to variable annuity policy behavior. Namely the techniques being put into action hope to help improve assumptions, setting, valuation, risk management and new product development. Lincoln hopes to take a page out of the property and casualty playbook by employing predictive modeling in product design and they believe they are among the first variable annuity companies to do so.
Lincoln will be utilizing Towers Watson and Oliver Wyman in two different capacities. Towers Watson has implemented predictive modeling in its analysis of the correlation between lapse behavior and variables such as age, gender, and policy size and duration. Lincoln will use Oliver Wyman to combine predictive analytics with attribution-based modeling techniques in order to refine its understanding of two distinct aspects of policyholder income utilization: income start time and withdrawal benefits.
Lincoln hopes to improve its understanding of how different policyholder characteristics and behaviors can impact policy-level value.