Several lifetime annuity providers were impacted by a reinsurer IT outage in the second half of last month, including Aviva, L&G, Scottish Widows and Standard Life.
As a result, more than half of the lifetime annuity open market was unable to provide underwritten annuity quotations for around a week. Some annuity providers were unable to quote at all during this period.
The exact reason behind the outage remains unconfirmed, although there are some whispers suggesting reasons behind the outage.
Annuity providers in the UK only have the option of three reinsurers to select from or they can do the role themselves, so there is not what I would call a vibrant reinsurer market in terms of the options available, and I imagine having such a limited number of reinsurers available has an impact on the competitiveness in this particular space.
Annuity providers use reinsurers during the quoting process, in particular, for underwritten quotes when health and lifestyle information has been disclosed – hence why the outage, in the main, impacted underwritten/enhanced annuity quotes.
Who knows, potentially the FCA could view this outage as a very real test for consumer duty – how did your firm do?The reinsurer calculates the potential annuitant’s life expectancy, providing a foundation for the annuity rate/yearly income figure to be returned.
I am conscious that I have introduced what the Information Commissioner’s Office would classify as sensitive data (a person’s health/medical information) into the process and although the reason for the outage has not been confirmed, I am reliably informed, that no data was lost.
In the majority of cases (if not all cases, as it should be), the information passed through the reinsurer's systems is anonymised.
As with any incident such as this, there will be further questions to be asked, investigations to be had and lessons to be learnt.
I can imagine many contracts and service-level agreements being checked and discussions ongoing with legal teams. A week feels like a long time for any outage; one has to question backup procedures and business continuity policies.
Some annuity providers (whether impacted by this outage or not) may well look to see what can be done should this situation happen again.
IT outages can be stressful and frustrating at the best of times – flashbacks of a time when I was involved in restoring corrupted email databases at 1am many years ago are currently sending shivers down my spine.
However, in this case, the outage not only presented itself as a bit of a test of everyone’s patience levels, but it was also a test for the annuity market as a whole and consumer duty.
It is no secret that the annuity market is going through somewhat of a resurgence of late. Looking at Google Trends data, interest in annuities was 80 per cent higher this October compared to October 2021.
This will not be a surprise to many, with standard annuity rates on a single life basis being more than 7 per cent for level payments, more than 5 per cent with payments increasing at 3 per cent each year and 4.5 per cent for payments linked to RPI for a 65-year-old.
I mention the points above to highlight that demand for annuities is currently high, relatively speaking compared to the years immediately after pension freedoms. Any adviser who has been through an annuity purchase in recent months has likely experienced just how busy it is.
However, for years now, the two key messages coming from regulators, policymakers and the annuity market alike to customers have been:
- Shop around on the open market to ensure you get the best deal.
- Disclose health and lifestyle information to ensure you get an accurate (and potentially higher) annuity rate to match your life expectancy.
This outage directly impacted both of these points. Not all the open market was quoting, and although not everyone will qualify for an underwritten annuity rate, our internal data shows me 20 per cent of lifetime annuities arranged through Retirement Line year-to-date were on standard terms.
With this in mind, it stood to reason that circa 80 per cent of potential lifetime annuity customers would likely be impacted by this outage. So how did the annuity market react?
From what I have seen and heard so far, the distribution chain handled the outage extremely well and communicated effectively with customers.
I know of specialist firms such as Retirement Line and others who halted lifetime annuity applications for any customers impacted during the outage, ensuring customers do not miss out on any potential additional income for the rest of their lives.
It has resulted in backlogs and hundreds, if not thousands, of re-quote requests taking place as advisers and distributors attempt to catch up. However, from what I have seen from specialists, the messages from regulators and the like held firm, which I am sure will be good news to the Financial Conduct Authority.
Who knows, potentially the FCA could view this outage as a very real test for consumer duty – how did your firm do?
If any lifetime annuity applications went out during the second half of October, are you confident the customer benefitted from the whole of the open market? Did the customer qualify for underwritten terms? If they did not with some annuity providers, it does not necessarily mean they do not qualify with all of them.
As I have alluded to above, from what I have seen the impact on customers has been minimal, efforts were made to mitigate customers potentially opting for a lower income for the rest of their lives due to temporary factors outside of their control. This leads to a potential consumer duty big green tick during this period.
With this said, I am mindful that we are in an age where IT incidents and outages cause much higher levels of distress than ever before, the threats of cyber attacks and data leaks are rife and are reported with greater frequency.
Communication, transparency and trust are of great importance to businesses and consumers alike, especially when we are dealing with people's personal finances and health/medical information.
Rapid confirmation of what caused the outage, how it was resolved and what steps have been taken or will be taken to mitigate this happening again would be hugely beneficial to all parties.
Mark Ormston is director of propositions and corporate partnerships at Retirement Line
How the annuity providers responded:
An Aviva spokesperson said: “We experienced problems providing enhanced annuity quotes for some customers. This was due to an IT issue with one of our suppliers. We worked closely with our third-party supplier as they resolved the situation.
“We put in place interim solutions to prioritise urgent cases while the issue was being resolved and we apologise to customers for any inconvenience.
“We were able to provide standard annuity quotes for customers – only enhanced annuity quotes were affected by the issue. This means that if a customer has no ongoing medical or health issues they were able to get a quote.”
A Standard Life spokesperson said: “We were unable to provide quotes in the annuity market for a short period in October due to a technical issue with an external part of our annuity quote service. This prevented some providers from quoting and meant that those looking for an annuity were not able to search the whole of the annuity market.
“This issue is now resolved. A small number of customers with Standard Life were affected by this incident, and our customer service teams made customers looking for an annuity aware of the issue, highlighting that they may want to wait until a full, whole of market, comparison was back-up and available.
“If a customer still wanted to proceed, they were able to do so, understanding that not all annuity companies were able to provide quotes. For customers who already had an annuity quote, these remained valid and customers could still apply for an annuity if they wished.”
“Standard Life has robust incident management processes in place that assess the impact of any scenario to both the business and customers, ensures the necessary actions are taken in response, and identifies the steps that can be taken to help mitigate the impact of similar events in the future.”
An L&G spokesperson said: “We use reinsurers for a small number of annuity quotes. We can confirm that one of our reinsurers recently experienced an IT outage, which has since been resolved.
“Due to this we temporarily paused issuing a limited number of annuity quotes through portals; however, we continued to quote as normal directly on our website and for intermediaries over the telephone.”
