Small schemes have options for buy-in but face wait for buyout
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Insurer capacity for transactions smaller than £100m has more than doubled in just two years to more than £10bn, increasing competition for a segment that made up 80% of all transactions last year, according to consultancy Hymans Robertson.
As well as existing insurers offering streamlined services, new market entrants – Royal London, Utmost and Blumont – have specifically allocated capacity towards small schemes “to help build their credibility and widen choice for pensions schemes in a market where demand has typically exceeded supply”, the firm said in a paper published on Friday.
Iain Church, head of core transactions, called the transformation of the market unprecedented. He said: “It has moved from a supply-constrained market to one where competition among insurers is intensifying, with insurers increasingly able to meet the specific needs of small schemes.”
Competition means insurers will need to work harder to differentiate themselves both on price and service, flexibility and execution, Church added.
Despite improved availability, very small schemes can still only expect to receive quotes from one or two insurers at most.
Hymans also identified a backlog of small schemes that want to convert their buy-ins to buyout, with insurers unwilling to give timeframes and small schemes having less leverage than larger peers.
“A key area of opportunity lies in how quickly and effectively insurers can support schemes in transitioning from buy-in to buyout. Every delay drives up costs, and those insurers that can combine competitive pricing with timescale certainty are likely to stand out in a market that is more dynamic and competitive than ever,” he said.
Ongoing running costs of a small scheme that is fully bought in can be disproportionate to the scheme’s size, the consultancy said.
