As the baby boomers retire and the annuity business continues to grow, the importance of a modern, flexible annuity platform becomes more and more evident for insurers.
Annuity purchasers have many more choices today and insurers must be able to provide competitive products, carefully tailored, in terms of underwriting and pricing, to the needs of individual buyers. In addition, new regulatory requirements call for insurers to change the way that annuities are administered.
Unfortunately, many insurers find themselves trying to support their portfolio of annuity offerings with outdated legacy software capabilities. Existing systems, often reflecting previous mergers and acquisitions, can be inflexible and unresponsive to the needs of the business. These legacy platforms can be expensive to maintain. And, because adding new products or changing existing products requires new coding, the company may find it hard to bring new offerings to market quickly. Many older, in-house systems cannot scale to the needed level and manage high volumes of business efficiently and accurately.
Insurers seeking to create a modern annuity system do have the option of total replacement. In general, IT budget restraints prevent all but a few companies from pursuing this approach. Another path is called “fronting:” leveraging a leading insurance software platform to provide a new, updated user interface layer for the legacy systems.
A third approach is a hybrid of the two: replacing one or more critical systems immediately while leveraging the fronting capabilities for the others; and pursuing a phased approach over several years to migrate all systems to a modern platform.
Modernizing the annuity system, whichever path is chosen, can pay big dividends. Modernization can enable insurers to increase speed to market, improve operating efficiency and drive down costs. Better products can be developed, with more effective customer service, and compliance-related process changes can be made more efficiently.
A modern annuity platform should be able to support multiple product lines or capabilities, especially in these key areas: