The UK pension-risk transfer (PRT) sector has become a buyer’s market.
With a record 11 insurers vying for a slice of the estimated £1.2tn of assets in defined benefit (DB) pensions that have yet to be de-risked, and PRT pricing more competitively, trustees can be fussier about how they select a partner to help with their bulk purchase annuity buy-in or buy-out.
That’s prompted insurers to be more creative to win schemes’ business, with enhanced and value-added member services the main focus of innovation. Offerings to woo trustees include personalised support, improved communications, tech-led features – including plan management apps and online portals – and even member lunches.
“Insurers are starting to sharpen their pencils a bit more because they know trustees are picking and choosing,” said Ann Rigby, Professional Trustee and Chair at BESTrustees, an independent trustee company.
“Before, there may have been only one insurer that trustees could actually afford. Now they’ve got four or five they can afford, so they’ve moved on from price to looking at the member service and the administration service,” she added.
Rising gilt yields have not only made pension-risk offset journeys more affordable for a greater number of schemes, especially smaller ones, but they have also improved the economics of bulk purchase annuities (BPAs) for insurers. The returns they can get from BPAs are at their most attractive outside of periods of recent economic crisis, according to a recent report by LCP.
The importance of member experience in trustees’ PRT decision making was borne out in a poll of attendees during a recent LCP webinar. It found that 36% of respondents said that, pricing being equal, “member experience would be the deciding factor” in selecting an insurer.
Insurers are offering enriched member services deals in recognition that trustees want assurances that little will change for members after buy-out, said LCP Senior Consultant Katie North-Walker.
“Once a scheme completes a buy-out the insurer will take over responsibility for scheme administration: its members will only interact with the insurer, there will be no contact with the previous administrator and the trustee board will no longer be in place,” North-Walker said.
“It’s therefore important to choose an insurer that can provide a strong service to members.”
In its report, LCP concluded that amid fierce competition both established and new insurers were striving to differentiate themselves in a crowded market.
Improved functionality offerings include assessing potential suitors’ financial strength or their ESG performance. It might also include an examination of insurers’ track records in handling the complex transition between buy-in and buy-out. Data management quality would be scrutinised in this regard.
Member services options, on the other hand, largely cover how insurers deal with members on an individual or group basis, and whether or not they can provide smoother customer experiences than the scheme’s original administrators.
“Insurers are starting to get better at providing [DB schemes] with what they probably already provide for defined contribution scheme members, in terms of online tools and just being able to access information digitally,” Rigby said.
Competition is hotting up in digital provisions, LCP’s North-Walker said in the company’s webinar. For instance, three of the 11 PRT providers offer websites with benefit modellers.
Web features include plan-modelling tools, immediate retirement quotes and streamlined administrative interactions, such as changing contact details. Self-service options are considered the gold standard and the next step is likely to be online retirement planning and execution, according to the webinar, with at least one provider having already implemented such an offering.
Communications and information sharing are also on the front line in the battle to lure trustees. Trustees want to know insurers will continue to engage with policyholders in the same way, said Rigby.
“If I’m used to ringing up the regular trustees admin team with a query and I know the person I’m speaking to, I’ll want to know if that will disappear,” said Rigby.
“Will it become faceless, will I be engaging with a chatbot, and am I going to be as important to a huge insurer as I was to the scheme administrator? That sort of day-to-day, regular contact is going to feel a little bit different and look a bit different with an insurer.”
Some insurers are going to new lengths to provide a personal touch. Members can choose from meet-the-team sessions with one insurer, for instance, or lunches with another, during which administrators can explain their support services.
Others have offered exclusivity deals in which trustees are promised better terms if they reject competitors early in the bidding process.
“They’re offering to be more flexible than they have been in the past and offering to mirror some of the terms in schemes that, probably, in the past they’d have said no to,” said Rigby.
As more trustees look to de-risk, insurers are exercising a degree of discrimination too. For instance, insurers are offering different terms according to the size of the scheme, with larger entities likely to receive more options. Individual insurers are also being selective about whether they bid for a scheme that’s courting more than a couple of alternative providers.
“If you’ve got a £1bn-plus scheme, your insurer is going to be a lot more willing to flex whatever their normal offering would be to suit your needs, whereas, if you’ve got a small scheme, it’s not in the insurer’s interest to do something a bit quirky or a bit bespoke,” said Rigby.
Also, selecting the right insurer can be difficult for trustees because no single insurer offers all of the new services and products that are available.
“It’s important to note that the insurers all have strengths in different areas,” said North-Walker.
Broadly, though, the ball is in trustees’ courts, and the expectation of more insurers entering the market is likely to maintain pressure on them to innovate in member services.
“We expect the vast majority of schemes to see a big step up in quality of administration and member experience under an insurer,” said North-Walker.