In certain instances, the efficient management of longevity risk transactions does exist, but as a whole, the marketplace has more work to do throughout the process, from start to finish.
This is according to the Head of the Longevity Risk Transfer at Prudential Financial, Inc. in the U.S., Amy Kessler, who recently discussed the efficiency of the expanding longevity risk transfer market with Reinsurance News.
“There are bright spots in the efficient management of longevity transactions but the market as a whole has more work to do in every step from start to finish. Improvements can be achieved in everything from data provision to bidding to documentation and execution,” said Kessler.
For Prudential, Kessler explained that generally, the greatest efficiency is achieved with existing clients where the firm transacts regularly and has a standard data format, an agreed upon way of providing its bid, master terms, streamlined ways to add new liabilities to the relationship and standard rules and models for operations.
A situation like this enables Prudential and its partner to work very efficiently together and to close new transactions in just a matter of days, underlining the value and benefits of strong relationships in the longevity risk transfer space.
“We also have a very efficient flow reinsurance offering for smaller transactions where we provide an advance commitment of capital, known pricing and the bundling of multiple small transactions into a single closing to enable our insurer clients to more nimbly and efficiently address the risk transfer needs of small pension funds.
“These bright spots are currently only happening in bilateral relationships where both parties have invested to achieve greater efficiency but they are evidence of what can be achieved more broadly,” explained Kessler.
Across the risk transfer space, companies of all shapes and sizes continue to strive for increased efficiency in an effort to lower costs and boost profits, while at the same time bring additional value to customers.
Assisting the global hunt for efficiency is the rise of technology, which is looking to disrupt, change, and ultimately better the risk transfer industry for buyers, sellers, and everyone in between.
When looking at the longevity risk transfer market, Kessler told Reinsurance News that technology is already transforming this market and will continue to do so for a good long time to come.
“Key areas for technological advances include data provision, underwriting, pricing and operations,” said Kessler.
Technology-driven transformations within the longevity risk transfer market include, but are by no means limited to the following advances, explained Kessler.
“Ensuring secure provision of data between pension funds, insurers and reinsurers; using artificial intelligence (AI) to prepare data for underwriting; employing predictive analytics to underwrite longevity risk; applying parallel processing techniques and robotic process automation to speed pricing; affirming beneficiaries are alive through electronic tracing; and, using a shared ledger (with or without blockchain technology) to more efficiently operationalise transactions and determine payments and collateral.”
Looking to the future, “if birth, marriage and death records become available digitally in most of the countries where the market is growing, it could revolutionise the operations and administration of these transactions.
“This future has already arrived in the Netherlands but we expect it to take quite some time for this best practice to become the norm in most countries,” concluded Kessler.