For many workers approaching retirement age, they are faced with making complex, jargon-riddled decisions that will impact the quality of their remaining lifetime, for better or for worse! Their financial assets accumulated over a forty-year or so period must now be put to work. With the average age for those about to retire being in the mid to late 80’s, and with 40% of them living into their 90’s, workers need to plan for a life span of another 20 years or more after they retire from work.
The ageing population and changing demographics around the world have put massive strains on corporate and government mechanisms to provide for those in retirement. The days of the defined benefit corporate pension are long gone, whilst State pensions and social welfare are under constant scrutiny to keep the pay bill down.
Over time, Governments have introduced legislation to create new incentives for individuals to take greater personal responsibility for putting money aside for the retirement years. These are more than just tax breaks, as I featured a few weeks ago in the article about the changes to UK pensions and the tech startup, Recordsure. The Government reforms try to create an environment where individuals are both incentivized (via tax breaks) and have some form of real choice (via flexibility in the highly regulated market).
Having featured the UK market recently, I was interested to speak this week with Matt Carey, CEO of InsuranceTech startup, Abaris. Based in Philadelphia, Matt took me through their business in the US market for income annuities.
Matt, who goes by the title Chief of Retirement Thinking, is one of three co-founders of Abaris along with Nimish Shukla, Chief of Numbers and Regulation, and Adam Colombo, Tech Expert. All three met through the Wharton School of Business in Philadelphia. Prior to forming the business, Matt worked on retirement policy for the US Treasury. It was here that he developed a profound understanding of the issue in the market from the decline in both social security and pension performance.
In the US, like most societies, the system relies on a 3 legged approach to retirement financing – pensions, savings and social security. Whether an individual choses to take an investment (take a risk) or an insurance (hedge your bets) approach at this point in their lives, the number one fear and risk for individuals remains the same – “will I outlive my money?”
The annuity product provides certainty but at a cost to the individual, partly driven by the capital and distribution cost for the insurance company, which can be as high as 20 cents on the $. And whilst annuities in the US are not the norm as they have been in the UK, the current high cost of distribution makes the income annuity market a good target for a new technology player like Abaris. By creating more competition online and through taking smaller commissions, Abaris can pool longevity to create a simple and open marketplace.
Abaris is the only platform in the US market that can provide a real-time, like for like comparison of retail annuity products.
The team’s current focus is on deferred income annuities, which are products that are purchased today with the promise of a certain future payout every month for the rest of one’s life. Individuals enter their basic information (date of birth, retirement age, income requirements) and Abaris, using their real-time API will go out to 7 of the 13 or so annuity providers that underwrite this product and compare the market. In a few seconds, the platform will present back an apples for apples comparison of the annuity options.
Simply, the platform will tell the individual, based on the data they provided, and by normalizing the different responses from across the market, that provider A will, for example, payout $700/month, provider B will pay out $800/month and provider C will pay out $750/month
Behind the scenes, the platform handles the jargon from each of the providers and makes sure that everything is translated back to a common language. For example, different providers may use the same term but with very different meanings. They may also use very different terms for exactly the same meaning. They may also state some terms where other providers are silent. And who says we all speak a common language!
This inconsistency in the use of terms and the different uses of language are confusing for individuals and, previously, made it hard for an informed buying decision to be made. It’s also made the challenge on the technology side pretty complicated.
Co-founder and tech expert, Adam Colombo has taken lead on building a restful API that is the first ever system that communicates programmatically with all of the carriers’ systems, thus enabling real-time quoting without providing access to the insurers’ underlying actuarial models. For those interested in the tech stack, it’s built on Jersey, which runs on the JVM.
Abaris also provides a simple comparison of the key differences between the product providers. To illustrate, one of the key variables that impact the value of the annuity payout is the credit rating of the provider. Provider A may pay out $700/month and provider B may pay out $800/month, but A has a higher credit rating than B, which means your $700 with A is, in theory, more secure than the $800 with B. The individual can make a choice of certainty over risk as they chose to do so.
But the real innovation comes from the flexibility that the platform gives the individual to model different options. What if the individual retired 2 years later, or at 70 instead of 65, what if they wanted to index link their income, or protect against a fixed rate of inflation?
The platform allows the individual to adjust key variables and in real-time, compare the outcome from the annuity providers. At retirement age 65, provider B may have offered the best product, but retire 3 years later and now provider A has the best rate. Add in inflation protection at 2% per annum and now provider C has the best rate.
The user interface is beautifully simple, both visually and also in the way the site “talks” to the user. Abaris has worked hard on their user experience to remove the traditional barrier of jargon when buying a complex product like an annuity.
The platform has also built in a trust promise to its users, which is that they won’t sell a product that isn’t right for the individual. Based on the individual’s details, the platform will let the individual know when the product they are looking for isn’t for them, or if the variables they have entered don’t make good sense. They also are transparent on the commissions they earn as the intermediary between the individual and the product provider.
In the US market, there are different regulations governing annuity products that vary State by State. This adds a layer of complexity in this market when comparing the different annuity providers and the platform takes this into account when comparing prices across different products.
Abaris is a business that represents exactly what InsuranceTech is about. They have simplified a previously complicated buying issue for prospective retirees, and in doing so, they are working to take cost out of the supply chain and improve the consumer experience at the same time.
And if, like me, you were wondering where the name Abaris comes from? It’s from Greek mythology, where he was a priest to Apollo and was said to be “endowed with the gift of prophecy, and by this as well as his simplicity and honesty he created great sensation in Greece, and was held in high esteem.”
It seems to me to be a very apt name for a business that combines simplicity, honesty and prophecy at the heart of its business.