Annuities and the rise of online underwriting

Annuity providers are considering rolling out full online underwriting services direct to consumers, but what effect might it have on advice delivery?

Enhanced annuity providers are considering direct-to-consumer (D2C) online underwriting, and potentially cutting advisers out of the initial stages of annuity shopping.

Current processes

Online annuity comparators available to consumers ask only limited questions, related to fund size, age, sex, smoking and medication use. For more tailored underwriting, consumers must go direct to an insurer specialising in enhanced life annuities and complete a health questionnaire over the phone or on paper, or do it via an IFA.

Online capability

Partnership is the only enhanced annuity provider offering fully-automated online underwriting D2C, but it is only available through Gallagher Heath’s (GH) annuity purchase portal. Otherwise, Partnership’s underwriting is only available over the phone or via paper application forms from the provider itself, or through another IFA.

MGM Advantage offers online underwriting via IFAs. Andrew Tully, retirement income technical manager at MGM, said there is a strong possibility of offering the online service D2C. “We have just trialled the online service D2C by offering it to people over the phone, who speak to an operator using the online service for them,” said Tully.

The dangers

Enhanced annuity provider Just Retirement launched telephone-based medical underwriting in February, available via the Openwork multi-tie network, with promises of “further solutions” later in 2011 and 2012.

However, Steve Lowe, external affairs director at Just Retirement, said offering the service online would be irresponsible. “It is dangerous for consumers to just press buttons online when they do not understand the concepts,” he said.

“Having a service when they can talk to someone over the phone and ask questions is much better. It is not the same customer learning behaviour as with shopping for car insurance; it is far more complicated and you only do it once.”

The effect on advice

Katherine Oxenham, business development director at Annuity Direct, said rising consumer awareness of OMO and the use of online tools means clients are coming to advisers having already done initial annuity research. However, she said advisers can still add value to retirees, even if they are no longer providing brokerage.

Oxenham said IFAs are still necessary for some clients who need help organising old policies, or need to have more complex products explained to them. Tully said the people who will be encouraged to purchase an annuity directly using online underwriting are the same people who will not be able to afford advice after the retail distribution review (RDR).

“We are still committed to IFAs but, post RDR, there will be people at the bottom who do not take advice,” he said. Stuart Grennan, director of GH, said the annuity portal he set up with Partnership actually drives some people back into the business for further advice.

Nigel Barlow, director of product development marketing at Partnership, said streamlined online underwriting could sit well within a restricted or simplified advice proposition. “It would help advisers serve clients with small pots post-RDR for less money without a decline in service standards,” he said.