Reaping the benefits of a modernized annuity platform

(1)  Variable annuities.   For the last 15 years, variable annuity products have included guaranteed living benefits as a rider.  A modern annuity platform, therefore, must support these riders, which can be extremely complex, requiring calculation of dozens of values and the display of many of these values for display in policy quoting.   An advanced software platform can give insurers the ability to adapt more effectively to this complexity by enabling business users to make configuration changes rapidly, rather than waiting for IT to generate new code. (2) Fixed annuities.  Fixed annuities include two major product categories.  The first is a general fixed product, which often offers better interest rates than a money market or savings account.  Another product category is the equity-indexed annuity, which ties performance to a major stock index.  For these products, a modern annuity system needs to be able to perform the market value adjustments that enable insurers to pass interest rate risk on to customers, rather than absorbing it themselves.   

(3) Payouts.  As baby boomers have approached retirement, the expectation has been that payouts would grow substantially. For a variety of reasons, however — including economic uncertainty and the fact that many people are working past traditional retirement age — people are not converting their deferred annuities into payout annuities at the expected rate.  As a result, payout products are now more complex than they were 10 to 15 years ago.  Older systems did little more than pay checks, but today an annuity system must be able to make payouts more liquid and provide flexibility, since some customers have had 20 to 30 years of flexibility on the deferred side. 

(4) Configuration and testing.   Another essential feature of a modern annuity system is that it should be significantly configurable from a product, business and process perspective.  In recent years, configurability has been the principal driver of the reduced effort required to make product changes.  More advanced software platforms for the life insurance and annuity industry go beyond configurability by offering prebuilt or “out of the box” templates for product and business configuration. 

These default products come with documentation and test cases for new carriers to leverage during initial implementation, as well as simplified data structures, which can improve data access and simplify integration with other systems.   The software should also offer effective testing capabilities because, even with advanced configurability, testing is still an essential part of the overall process. 

A modern annuity system can help insurers control costs through configuration and pre-defined templates that enable process changes to be made more quickly.  Pricing can be done more effectively through better analysis of risk.  And, perhaps most important, insurers can speed new products to market and help make faster changes to existing products. As annuities continue growing, these benefits can help insurers establish and maintain important competitive advantages in this key product area.