DB scheme trustees should consider more than just price when selecting an insurer for buy-in or buy-out, according to Hymans Robertson’s new paper.
According to the paper, as schemes go towards buy-out and wind-up, cost is still the main factor, but trustees should also evaluate non-price factors such as the insurer’s operational procedures, administrative skills, and approach to environmental, social, and governance (ESG) issues.
The ability of the insurer to oversee data cleansing, adhere to project schedules, and provide a seamless experience for scheme participants is highlighted in the paper.
It is also recommended that trustees verify that insurers have robust governance systems in place that address topics like risk management and cybersecurity.
Hymans Robertson emphasises that ESG pledges made by insurers must not just be a box-checking exercise.
Hymans Robertson senior actuarial consultant Paula Haughton says: “As DB schemes continue to head towards buy-out, factors other than price are becoming increasingly important to their trustees. Administration is high on the list of concerns. The insurer’s financial strength, how it manages risks stemming from its operations, investments, and use of funded reinsurance also form part of discussions.
“Choosing the right insurer is not a straightforward decision and encompasses a wide range of factors all very much dependent on the scheme’s circumstances, timescales and budgets. Having clear upfront discussions about what is important prior to insurer selection is vital to ensure a good match is made.
“It helps with productive discussions and builds confidence that the journey after buy-in will be smooth and efficient, with members getting a good experience. The balance between price and other factors is a delicate one, but walking this fine line can only bring confidence to the buy-out experience.”
“DB Trustees have several tools they can use to assess insurers on their administration capabilities. Advisers can assess insurers’ administration capability and relay their own experience.”