DB schemes should consider non-price factors when assessing buy-in or buy-out insurers

DB scheme trustees choosing an insurer for buy-in or buy-out should increasingly consider ‘other’ factors as well as price, says Hymans Robertson in its paper published today which outlines how to assess insurers for non-price factors.

While overall cost remains crucial for DB pension scheme trustees assessing options as their schemes reach buy-out and wind up, non-price factors – such as administration capability, operational considerations, and insurer’s ESG targets – should also be considered.

In its paper, the leading pensions and financial services consultancy outlines what DB trustees need to think about as they assess these other factors.  These include the ability to provide a robust administration capability, the process during data cleanse and whether the insurer will be able to meet timescales yet remain flexible. It also suggests thinking about whether members will have a smooth experience and checking that the insurer also has security and governance measures in place, such as cyber security and risk management processes. Environmental, social and governance (ESG) factors are getting more focus too. Insurers need to show that their approach to ESG isn’t just a tick-box exercise.

Commenting on non-price factors that DB schemes should be considering, Paula Haughton, Senior Actuarial Consultant at Hymans Robertson 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.”