Annuity sales will rise from £9 billion ($18
billion) in 2007 to £16 billion by 2011, forecasts research company
Celent. While this is good news from a marketing perspective, it
represents a major headache to many insurers’ chief information
officers.
“The UK annuities market is characterised by
increased need for product innovation, increased competition and
tight regulatory scrutiny,’’ said Catherine Stagg-Macey, senior
insurance analyst at Celent. “This raises some key challenges for
CIOs; the legacy [IT] systems will be what keeps them awake at
night.”
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She explained that many annuity providers are using administration
systems that are decades old. These legacy systems are a major
problem for CIOs as they affect areas such as time to market and
product innovation, and add a significant layer of processing
costs.
Annuities are low-margin products that depend on low costs of
capital and efficient business process, she added. “Given the
hyper-competitive nature of the market, annuity providers that do
not update their core systems, while also supporting a more
demanding distribution force will face significant
challenges.”
Not surprisingly, insurers face a big IT spend to cope with
burgeoning annuity product demand. Celent forecast that UK annuity
writers would spend a total of £318 million on IT in 2007, rising
to £556 million in 2011.
