North American Annuities, 2012

Market Trends and Technology Considerations
by Karen Monks, September 18, 2012
Industry Trends
North America

Abstract

Annuities in North America make up the largest percentage of life insurance company revenues in terms of total premiums. Current market conditions are demanding that insurers monitor costs and risks while trying to come up with innovative new products.

The United States annuity market has been affected by the economic downturn as consumers shied away from fixed annuities (FA), and insurers backed away from guaranteed variable annuities. Insurers in 2012 are experiencing increased annuity sales due to the recent successes of indexed annuities, a relatively complex product tied to an equity index guaranteeing a rate of return. Celent estimates that these newer indexed annuities and a host of other new annuity products introduced over the past few years will help total annuity sales grow to US$368 billion by 2014, a CAGR of 4%.

In a new report, North American Annuities, 2012: Market Trends and Technology Considerations, Celent provides a summary of the past market conditions as well as predictions for the annuity market through 2014. The impact of the financial crisis and recently implemented regulations are discussed along with the technology solutions that may help insurers meet the requirements.

The impact of the financial crisis and long-term low interest rates, increased regulation, and the reality that traditional insurance distribution channels are a smaller percentage of annuity sales are challenges that insurers face as they decide whether to grow their annuity business. If an insurer opts to stay in the annuity business, CIOs are faced with technology challenges that reflect these issues. CIOs have been given several tasks that support insurers’ annuity businesses: to support product innovation while dealing with inflexible legacy systems, to manage risk, to provide compelling agent tools and policyholder service that rivals that of other wealth management providers, to move toward straight-through processing, and to handle intensive data processing issues like valuation.

“The annuity market is characterized by accelerated product innovation, operational risk and cost concerns, unpredictable equity market performance, and a marketplace with changing players,” says Karen Monks, Analyst with Celent’s Insurance Group and author of the report. “Insurers are challenged to find the right annuity product features and guarantees in a climate with uncertain returns and increased regulations regarding risk. It’s not an easy market in which to operate, which is why so many insurers have exited recently.”

This report looks at the North American annuity market and provides future annuity sales and estimates of IT spending by annuity writers.

This 26-page report contains four tables and 10 figures.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America (Boston)
Tylor Tourville
ttourville@celent.com
Tel.: +1 617 424 3284

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)208 870 7875

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81.3.3500.3023

Table of Contents

Executive Summary

1

Introduction

2

Annuities Overview

3

 

About Annuities

3

 

Product Complexity

4

 

Market Trends

5

 

Net Inflows

8

 

Market Concentration

9

 

Distribution

9

 

Regulatory Challenges

11

 

Closed Blocks

13

 

Expense Control

15

Annuity Insurer Technology Considerations

16

 

Product Innovation

16

 

Front End

16

 

Straight-Through Processing

18

 

Core Systems

19

 

Enterprise Risk Management

20

Annuity IT Spending Estimates

22

Looking Forward

24

Leveraging Celent’s Expertise

25

 

Support for Financial Institutions

25

 

Support for Vendors

25

Related Celent Research

26

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