Replacing product management systems accounts for more than 25 percent of new project IT budgets for several top annuity writers, and many CIOs said core systems replacement was at the top of their list for 2011-'12, according to the authors of “North American Annuities, 2012: Market Trends and Technology Considerations,” a new report from Celent.

In terms of total premium, the individual and group annuity market accounted for half of the life, annuity and health market, with total premiums of $326 billion. New annuity products, such as indexed annuities and others, could grow the market at a compound annual growth rate (CAGR) of 4 percent and lead to total sales of $368 billion by 2014, the report said.

While annuities present an opportunity for growing the business, which is the stated goal of most CIOs, legacy policy administration systems potentially hamper that growth.

According to the report, in 2012 annuity writers will spend $11.9 billion on information technology, with $1.9 billion spent on core system enhancements, straight through processing (STP), distribution systems, and actuarial/product projects. Celent projects total IT investment in the space for 2014 to grow to $13.9 billion by 2014.

Core Systems

According to the report, “Inflexible policy administration systems, which have been built and modified over many years, typically have business logic which lives in poorly documented code rather than accessible rules engines or tables. Product models are limited rather than extensible. Changes require massive amounts of testing to ensure that they don’t break downstream systems. Celent has found that often more than half of the resources related to a product’s introduction lifecycle are spent in the implementation of the product in a policy administration system because of the limitations of legacy systems.”


New product launches, sales and profitability are directly correlated with ease-of-use and front-end systems, such as agent portals that offer capabilities like product illustrations, new business submission, account servicing, reporting, electronic applications, and straight-through processing—all of which greatly facilitate the account opening process.

“Offering portals via mobile devices is a functionality many insurers are exploring. Some features being offered include annuity product reviews and comparison, suitability processes, and e-signatures. Mobile capabilities, although not in high demand yet, are seen by Celent as an emerging technology that will soon be a required part of doing business with agents and brokers,” the report said.

Straight-Through Processing

Straight-through Processing (STP), a set of standards that permit interoperability among insurers, distributors and vendors, permits electronic transactions from the point of sale through to the electronic issuance of the annuity.

The standards are vendor and technology neutral and were created by IRI and partners, including ACORD; DTCC; American Council of Life Insurers; Financial Services Institute; Securities Industry and Financial Markets Association; and Standards and Procedures for Electronic Records and Signatures.

The enabling capabilities created include:

Suitability: Minimum standards for suitability procedures to be adopted by distributors and in carrier compliance reports.

Application form: Use of an electronic application with an electronic signature at point of sale.

Privacy: Standards for the safekeeping of non-public information, including encryption of electronic transmissions.

Records management: Standards for robust recordkeeping and the need for all records to be clearly audited to assure full compliance with all applicable requirements.

“A lasting remnant of the fiscal crisis is that it taught insurers many things about product development and risk. Annuity writers must keep regulatory requirements in mind and move toward the successful management of enterprise risk to ensure that events of the past don’t repeat themselves,” the report concluded.

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