U.S. Pension Risk Transfer Peer Discussion: The Facts on the Ground
Following this past spring’s successful Voluntary Benefits Virtual Peer Discussion, insurance innovation nonprofit InnSure – in partnership with Vitech – hosted an inaugural Pension Risk Transfer (PRT) virtual discussion, with 17 senior representatives from some of the largest U.S. PRT providers discussing their perspectives on current market conditions and challenges. We participated in this call, along with a combination of PRT business, operations, and technology executives, representing Prudential, MetLife, Principal Financial, Pacific Life, Massachusetts Mutual, AIG, and Athene. It was good to reconnect and speak with so many colleagues to compare notes about how the industry has responded to the pandemic, and what changes and potential innovations have developed despite a year of pronounced industry disruption.
A Positive Outlook
The discussion participants agreed about the buoyant PRT market outlook for 2021, with a new premium forecast of $40 billion or more, driven by pent-up demand along with improving financial market conditions and better funding levels for corporate pension plans. Several large transactions closed during the first quarter and this trend is expected to continue, with an increasing number of both smaller and larger deals. Competition for these deals continues to increase, among the existing players along with a few new PRT market entrants.
Selection Process Drivers and Integrated Digital Administration
Many of the participants noted that particularly for larger deals, insurance company financial strength, operational capabilities, and employer/participant user experience, in that order, drive the selection process for plan sponsors and their fiduciaries. Operationally, for all types of cases, insurance companies need to offer robust engagement capabilities to participants that go beyond just standard welcome kits. Vitech refers to this type of engagement as integrated digital administration – a sophisticated, ongoing campaign outreach model where an insurer can:
- Set up a repeatable process, like the going-into-retirement process, as a workflow or a campaign;
- Initiate a campaign with outreach to participants using their preferred contact method (digital/portal, call center, email);
- Use easily customizable, preset documents and correspondence for their two-way communications with participants;
- Access advanced integration capabilities to share participant responses with different insurance company systems and departments to maximize efficiency and effectiveness; and
- Employ data enrichment with advanced reporting and analytics capabilities to find important trends and optimize the next campaign(s).
Key PRT Market Observations and Suggestions
During the call, participants emphasized that onboarding in the PRT market, particularly for large transactions with more than 1,000 lives, requires a higher level of efficiency and speed. Effective onboarding (including clean, accurate data) enables downstream administration efficiency and effective, ongoing engagement with participants. One executive mentioned that using a more effective campaign outreach approach can help with the ongoing difficulties of locating lost participants by being more proactive with updating addresses and other contact information. This is a perennial industry challenge and requires a new approach.
Another notable observation was that plan participants and their employers generally expect a more enjoyable and effortless customer experience when interacting with PRT insurance companies. But insurance companies face challenges from their mix of old and new technology that obstruct the user experience and mixed results from self-service adoption when they introduce new/better self-service technology. Payments to retiree participants are a bright spot, where one attendee mentioned that 90% of their retiree participants use electronic funds transfer (EFT) instead of paper checks for receiving their monthly payments. Retirement income calculators are another self-service success story, with pre-retirees now actively using them as they approach retirement.
One participant spoke about how her company has focused significantly on improving self-service engagement. She recommended that PRT insurance companies do the following:
- Take inventory of the existing communication touchpoints with annuitants (retirees), including annual tax withholding and other notices, to determine the best opportunities for increased self-service usage. High-volume transactions, like monthly payments, provide the most opportunity, but many interactions only happen once per year. Therefore, PRT insurance companies need to use these less-frequent touchpoints more effectively to educate participants about the benefits of self-service.
- Redesign self-service portals to be more welcoming and encourage digital usage, using lessons from other types of financial services companies, for a more intuitive and user-friendly experience.
- Use call center staff to educate participants about self-service and provide walk-throughs of user portals, whenever possible.
- Expand on the success of retirement benefit calculators to engage more with pre-retirees, using other types of value-added financial, health/wellness, or other relevant tools or content.
Digital Engagement and Pricing Imperatives
Participants did have some differences of opinion regarding the importance of digital engagement capabilities (compared with pricing and operational capabilities) in winning deals, but most agreed that digital engagement is most pressing in deals that include more pre-retirees compared with retirees.
Issuer Points of Pride
Several executives were quick to note that insurers in today’s PRT market have so far successfully maintained the solvency and long-term viability of corporate pension plans, despite the market’s erratic behavior of the past year. By doing so, they have enabled plan participants and their beneficiaries to secure a stable retirement, with the appropriate resources to enjoy their golden years.
Judging from the various types of feedback we all received from insurers, business leaders, and IT staff, there are a variety of perspectives on the digital/customer experience. What we know for a certainty is that it became that much more important in a socially distanced year, when many plan participants used self-service options more than ever before. The pandemic has certainly been an important catalyst for reviews of technology, with many insurers realizing the necessity of modern core systems to ensure operational efficiency and effectiveness.
For us, the facts on the ground about the current PRT market remain clear. The industry is looking incredibly healthy, especially as more defined benefit plan sponsors aren’t willing to undertake the risk associated with accumulated pension liabilities. Despite last year’s slowdown, there are a significant number of bidders for deals in development. Based on the evidence from the remainder of 2020 and 2021 to date, deals themselves are returning to their steady upward trend. Barring any unexpected stock market instability, current PRT demand and competition among the coterie of competitors should be here to stay for the immediate future.