How next-gen pricing tech can help insurers offer better annuity products
Next-gen pricing technologies are dynamic platforms that simultaneously combine economic scenarios, profitability metrics, and capital requirements to price annuity products.
“Tools, such as Earnix Price-It for Annuities and Milliman Integrate, allow insurers to price and reprice annuity products in real-time,” said Thomas J. Brock, certified financial advisor and contributor at RetireGuide.
Next-gen pricing technologies also enable insurers to stress-test outcomes and provide visibility into how pricing decisions affect margins, liquidity and capital adequacy. As long as advisors are aware of their strengths but mindful of their pitfalls, pricing platforms can help them support clients in various stages of life.
Next-gen pricing tech benefits for advisors
The primary advantage of next-gen pricing tech is to provide an insurance company with one focal point for data and actuarial modeling.
“It can replace spreadsheets and legacy systems, enabling an insurer to evaluate pricing as well as create and test alternate scenarios,” explained Frederick Saide, managing partner at MoneyMattersUSA®, Advisory LLC.
This capability allows them to update annuity pricing quickly and modify or create new products or premium allocations within existing products, ensuring they’re aligned with market conditions in almost real time.
Drawbacks to understand
Just like most technologies, these pricing platforms are not perfect. According to Saide, those who use them must keep up with frequent product updates. In short, the challenge is the learning curve itself.
The second drawback has to do with transparency, which works two ways. The client may have gained knowledge from an internet search but the knowledge may be limited or applied to the wrong product.
“The advisor may now need to spend more time explaining the cost of the guarantees offered in the products and why product design may shift in response to market demand,” said Saide.
Finally, different insurance companies may choose to rapidly update their offerings, while others offer less sophisticated products for different market segments and may not update their offerings as quickly.
How advisors can leverage these tools
Next-gen pricing technologies may help advisors explain interest rate movements, impact guarantees, and income from different annuity products.
“Oftentimes, clients don’t fully understand how interest rate crediting works, including how the payout factor reflects mortality assumptions and interest rates. An advisor can ask the insurance company to run multiple scenarios, allowing clients to understand the options offered as well as any trade-off,s such as higher fees,” explained Saide.
Essentially, next-gen pricing platforms take the guesswork out of pricing, adding transparency and consistency to the process. Since they update regularly, advisors can identify better opportunities for clients or optimize existing strategies as needed.
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