US Annuities: Market Trends and Key Technology Issues

by Craig Weber, May 29, 2007


Boston, MA, USA May 29, 2007

Celent projects that US annuity sales could grow to US$390 billion by 2011, but technology issues will continue to challenge the players in this hyper-competitive market.

Celent's latest report, , puts the spotlight on the technology challenges to participants in this rapidly growing market. The report looks at sales trends, industry concentration, regulatory pressures, examinations of specific technology challenges like legacy systems and supporting more demanding distributors, and survey data from a group of annuity super-producers who sell over US$500,000 worth of annuities per year.

"This hypercompetitive market puts a huge premium on product innovation and distributor service," notes Matthew Josefowicz, managing director of Celent's insurance practice and lead author of the report, which was cowritten by senior analyst Craig Weber and research associate Ashley Evans. "But there are significant technology challenges to these goals, including supporting adding new products to inflexible legacy systems that weren't designed to support them, managing integration with distributor partner systems, providing compelling agent tools and policyholder service that rivals that of other wealth management providers, moving toward straight-through processing, and handling intensive data processing issues like valuation."

"We see more consolidation in the annuity market on the horizon, driven largely by competition for distributor shelf space," comments Weber. "While consolidation will help the business side, the challenges to the CIO in merging technology systems and account and contract data will be immense."

Celent's report estimates that US annuity writers will spend a total of US$8.3 billion on IT in 2007, growing to almost US$10 billion by 2011. Of the 2007 total, Celent further estimates that roughly US$1.3 billion will be spent on software and services for new strategic projects, including product management, other core system enhancements, distribution systems, and policyholder service.

The report contains additional limited profiles about other vendors that provided fewer details or did not meet the inclusion criteria.

"Investment in new technologies is the only way to continue to compete effectively in this market," Josefowicz notes.

The 21-page report contains 10 figures and tables of market data, producer survey data, and IT spending estimates. A table of contents is available online.

Members of Celent's Life/Health Insurance research services can download the report electronically by clicking on the icon to the left. Non-members should contact for more information.  

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 a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

Boston, MA, USA May 29, 2007

Executive Summary 3
Annuities Overview 4
  Key Technology-Related Points 4
  About Annuities 4
  Product Complexity 5
  Market Trends 6
  Net Inflows 7
  Market Concentration 8
  Distribution 8
  Regulatory Challenges 10
  Consumer Branding Problems 11
Annuity Writer Technology Priorities 12
  Product Innovation 12
  Distribution: Banks and Brokers 12
  Straight-Through Processing 12
  Distribution: Agent Tools 13
  Policyholder Service 16
  Intensive Data Processing: Valuation 16
Annuity IT Spending Estimates 17
Looking Forward 19
Objectivity and Methodology 20

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