Using technology to help uncover hidden opportunities in the annuities market

Philip Taylor CFA, President and Chief Analytics Officer, FinMason

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Annuities are often perceived as unattractive, but industry professionals are taking more and more notice of them. The US market is robust and growing, and much of this success is being enabled by modern technology.

 

In 2023, the US annuity market saw almost $400 billion in sales, a record high for the second year in a row – growing from only $260 billion in 2016. Products are greatly improved, and technology solutions are available to assist with the complexities.

 

Unpacking this growth further, fixed-rate annuities are taking market share from variable annuities, but this is to be expected given market performance and higher interest rates. The more interesting trend is the registered index linked annuities (RILA) market, which has grown its share since 2019 to over 14 per cent, and is expected to continue gaining.

 

Industry challenges

 

So why do annuities have such a bad rep? Historically, they had quite high fee rates. Although this has now changed significantly, advisors still perceive them to be a high-fee product. In addition, they are viewed as highly complex, and their lack of liquidity can also be a challenge.

 

There are even more factors: the wide choice of products and technology out there, lack of standardisation, new market participants and regulatory uncertainty only add to the challenge.

 

Benefits of annuities

 

So what does make these products interesting? Fee rates are now generally greatly reduced, and the opportunity to replace traditional investments with annuities allows the investor to defer taxes, which can create very large benefits and avoid the annual tax bill. In addition, annuities can provide a useful income stream post-retirement, and RILA products can provide market participation alongside reduced risk – an always-powerful benefit.

 

Leveraging technology for advisors

 

Insurance carriers are now working hard in partnership with fintechs to make it easier for advisors to do business with them. They’re working hard to get the message out to educate advisors and are making powerful online calculators available to make it easier for advisors to understand and be able to explain the benefits to their clients. This creates a smoother, more modern experience for advisors to learn about the market, select the right products and complete transactions for their clients.

 

Preparing for the future of fintech

 

While AI is today’s hot-button topic, data management is still the largest challenge in the financial industry and underlies many of these challenges. AI and modern tech tools are only as good as the data that feeds them. Fintechs are working to help the industry to solve problems with disparate data sources, data validation and governance, and datasets that are controlled by outside vendors. As these problems are solved, AI will be able to become an increasingly important tool in furthering the advisor’s experience, efficiency and effectiveness.

 

An integration with huge potential

 

The integration of fintech in the annuity sector offers transformative potential. By leveraging technology and prioritising the advisor experience, firms can position themselves for future success. Focusing on education and smoothing the path for advisors will be key to unlocking the full potential of the annuity market.

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To learn more about FinMason’s advanced modular technology solutions, visit www.finmason.com.