Richard Ross discusses the role technology can play in increasing take up of the open market option
Technology is already playing a key role in helping advisers and consumers get access to the best annuity rates available on the open-market. Going forward, it will play a much more pivotal role if the objective of trying to get the message out to all retirees is going to become a reality.
Advisers will be familiar with the key role which technology plays in traditional B2B models, not least when it comes to enabling advisers to research the conventional annuity market cost-effectively and efficiently. In addition to this, recent technology enhancements now deliver guaranteed rates for even the most complex cases, including impaired lives.
However, with technology continuing to evolve at an unprecedented rate, looking out for developments which could help to promote the options available to clients at retirement could be a shrewd move for advisers and product providers.
Direct to the consumer
The proliferation of consumer-facing websites which offer information and advice on annuities has become increasingly evident over the past few years. Most of these are very similar in nature; some will offer quote capability, preferably via real-time messaging to the product providers, some will still rely on indicative rate tables, while others will just ask the consumer to fill in an enquiry form and will call the client back to discuss their enquiry further.
For those which do offer quote capability, it is quite noticeable how similar these are in nature to the adviser-facing solutions. While advisers can get the best out of these systems, because they have a good understanding of the options, the same cannot be said about the majority of consumers. The key question is whether the current approach is appropriate for consumers who, in most instances, will be completely alien to most of the terminology and options that are being presented to them.
Deciding on the most appropriate annuity profile is not like making a decision on car insurance, where drivers can weigh-up a few limited options from one year to the next, in order to secure the most suitable deal available. The decision on an annuity is typically made once and cannot be altered when personal situations change. The journey that the industry takes consumers on should therefore be very mindful of this, and needs to adopt a fresh approach rather than being built from existing applications.
For consumers, shopping around on the web is becoming the norm and in the annuities space one of the websites that has been at the forefront is the FSA’s ‘Moneymadeclear’ service. However, this service has not kept up-to-date with technological advances and needs a re-think if it is going to continue to play a role in educating consumers. With two leading providers, Aviva and Prudential, no longer able to quote, the value and viability of the service is becoming more and more questionable.
Aviva’s recent marketing campaign, aimed at retirees, signals a refreshing approach to the problem of consumer education. On its consumer website, the company makes use of an interactive tool which allows consumers to play around with the different options available to them at retirement. The consumer will, subsequently, graphically be shown the impact which different options can have on their income. This type of feature is part of the education process and helps consumers with the tricky conundrum which they will face: prioritisation of options, versus affordability.
The use of such tools to increase consumer knowledge will ultimately benefit the adviser community, by helping to mitigate the pressure currently placed on advisers who – in some cases – are expected to provide an education service in order to have an informed discussion with their client.
Undoubtedly, this has been the major growth area within the conventional annuities sector in recent times, with more entrants joining the market and even the standard annuity writers being drawn into a battle for this business. Enhanced annuities have gone from being a niche product, to being firmly mainstream. A lot of education was needed to achieve this and a key role in the education process was technology. Just Retirement paved the way by offering real-time, underwritten rates from launch, but the baton has been picked up by the rest of the market and it is now essential for any new entrant into the enhanced market to have the technology to support instant quotes.
The challenge to the providers of flexible retirement products is getting them into the mainstream. Living Time’s clever marketing slogan ‘Offer More Options’ indicates quite clearly that it thinks its product should be considered as part of any OMO research. The challenge for advisers when considering flexible retirement products is how to compare the many products on the market? With many of the products not being directly comparable, price is no longer the only factor on which to base a recommendation. So, how does the industry provide the tools necessary to empower advisers and give them the confidence to be assured that they are advising their client on the best products available?
Technology should, again, play a key role in promoting the flexibility that these products offer, but the challenge for this market will be how the technology is best deployed. Looking at how the products are made available at the moment, I am not sure that the right answer is out there yet, especially with regards to a consumer-facing proposition. The announcement that LV= plans to join the market might just be the stimulus needed. LV= has been through it once before with enhanced annuities and obviously feels like taking on a new, but not dissimilar challenge.
Driving down costs
Everyone recognises that there is a rapidly growing market within annuities, with more money sitting in money purchase schemes, more pressure on the industry to promote the OMO, and the baby-boom resulting in an increasing number of people reaching retirement age. All of these factors will result in the industry having to try and service a diverse mix of products available to help meet the needs of these customers.
Traditionally, some of the key distribution groups within the annuities space have operated their own technology solutions, maintaining direct links to product providers for the provision of rates. As the market grows, in terms of new entrants and new products, the question of how sustainable the model is will need to be asked?
Let’s not forget the impact that the RDR will have on advised annuity sales. As it currently stands, the educational benchmark will be the same for someone advising on vanilla annuities and someone doing complete holistic financial planning. If advised annuities are only marginally profitable now, this requirement certainly will not help. This could drive the move to non-advised services where technology can play a big part.
Technology can help drive down costs for the industry by offering a reusable solution fordistributors needing to get access to provider products without losing flexibility when it comes to how the end solution is deployed within their particular sales channel. This approach frees up their resources to focus on getting the customer journey right and not be burdened with maintaining multiple direct provider links.
This has the added benefit of bringing cost savings and increasing speed to market for providers who do not need to build and maintain links with multiple distribution groups. Limited resource and funding are always constraining factors when launching a new product, so this approach will surely be welcome news to providers.
Unlock the potential
The challenge of increasing OMO awareness is not a new one but it is definitely grabbing more headlines now than ever before. With many initiatives in the market place, it seems like only a matter of time before a solution is found and when this happens there will undoubtedly be some major winners. In order to be one of them, many companies will need to look at the technology solution that powers their proposition and think about the sustainability of that proposition. It may be that there will soon be an alternative solution which heightens efficiency, increases profitability and offers more agility to deal with the ever-changing market. By employing such a solution, companies will ensure they are at the head of the pack – a position which is not to be balked at in such a competitive marketplace.
Richard Ross is a product strategy manager at Assureweb
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