Impacting growth of annuity companies with AI driven solutions

Impacting growth of annuity companies with AI driven solutions

by: Dror Katzav, CEO and Founder

July 3rd, 2023

“While uncertainty continues to abound in equity markets, clients will favor the principal protection and asset growth that fixed annuities provide.”-  Phil Michalowski, Head of Annuities with MassMutual

Leveraging technology in a growing annuity market

The world economy is slowing down. Inflation is higher than it has been in several decades, leading to an increased cost of living and financial uncertainty for many people and companies. While many businesses are suffering from this uncertainty, annuity companies are well-positioned to weather the storm and emerge stronger on the other side. Here’s a closer look at how the current economy affects the annuity market.

The central bank’s series of aggressive interest rate hikes this year have contributed to the increase in annuity sales. Sales of annuities are growing significantly faster than other fintech sectors, such as life insurance. LIMRA’s preliminary estimates indicate that annuity sales rose 27% from a year earlier to $79.6 billion. 70% of the total sales were fixed annuities. Fixed-rate volume was $29.8 billion, almost 160% higher than a year earlier. Volume was more than twice as high as for traditional variable annuities, once the dominant product in the industry.

Why is this?

“On average, Fixed-rate deferred (FRD) annuity crediting rates continue to outperform CD rates, making these products very attractive to conservative investors,” said Giesing. “LIMRA anticipates FRD products to have strong sales this year even though interest rates are expected to fall in the second half of 2023. While we don’t expect FRD sales to match the record set in 2022, LIMRA is forecasting sales to be above $100 billion in 2023.”

So if sales are on the rise, what are the challenges that annuity providers face?

Due to the short duration of annuity products, companies tend not to engage with existing customers. So while getting annuitants might be easy, keeping them is more challenging, and the industry suffers from a conservation problem and a high surrender rate.

When it comes to annuitants, most are happy with their products and won’t consider surrendering and looking elsewhere for a new product. However, some customers will constantly look at the market to see if better products are available and would surrender if they found a more attractive product, even if they are within the penalty period. 

How do you keep customers from leaving your company?

Implementing the right modernized technology is critical for decreasing the surrender rate and increasing retention, driving higher top-line growth. 

AI and predictive solutions can provide insights into existing customer data and automatically increase engagement with at-risk customers . AI technology can use internal and external data (issuer’s data) to help engage, retain, and upsell their existing customers instead of losing them to another annuity company. Additionally, AI insights can help issuers sell directly to customers by using elasticity models and sensitive pricing that will adjust to market supply and demand. 

This is the new era of optimizing and monetizing the potential of existing customers. It is not only the level of service expected from the industry but also a new way to grow profits and increase customer satisfaction with technology that is available in the market.