February 22, 2016
In this blog I will give my view and observations of the similarities and differences on the pension and life insurance market in Sweden and Norway. In addition, how Profit Software’s solution fits the life and pension insurance companies’ demand for modern and effective systems for administration of their pension products and policies.
Similarities in the national pension models
The pension system in Sweden and Norway consist of three levels. If we use the analogy of a pyramid, the ground level is the national insurance scheme, which includes the pension benefit managed by the government. The second level is the mandatory occupational pension, consisting of pension accrued from your work life. The third level and top of the pyramid, is the voluntary private pension savings. The two top levels are managed by private insurance companies, which are Profit Software’s customers. The pension model is quite similar in Norway and Sweden.
Differences in distribution
The biggest difference is the way the pension products are sold to the customers. In comparison to Norway, the Swedish pension market is more complex with many players and sales channels. In Sweden, the main sales channel for occupational pension is ‘Valcentraler’, owned and managed by the labour unions. The employee has a ‘smörgåsbord’ with more than 20 different pension plans with complimentary risk insurances, determined by the union of the employee. ‘Valcentraler’ offers the employer and employee a pre-selected number of insurance companies to choose from, resulting in control of about 85% of the occupational insurance market. The remaining 15% of the occupational pension market is mainly sold through insurance brokers and agents.
Changes in the pension markets
Let us face it, changes are hard to embrace especially when they are rocking the roots of your business. The nature of pensions insurance is longevity and stability and even small changes can have costly effects on the pension savings itself and on the systems used by the insurance companies. The insurance companies are under strong regulation by the national authorities (e.g. Finansinspektionen and Finanstilsynet) which again are under European and international laws and regulations. The companies have to follow the mandatory rules and regulations and comply with the upcoming changes from the authorities. Norway is currently undergoing a change in the mandatory occupational pension scheme and there are still some elements that need to be carved out before it is finalized, e.g. disability pension. These changes will most likely drive demand in upgrading and modifying their IT systems.
In Sweden must the insurance advisors change the way they are operating, because of new regulations in bonus and consultancy fees (MiFID 2 and IDD) forcing the advisors to look at new business models. Another change is the right for the employee to freely move their pension savings from previous employments, so called ‘fribrev’, to the insurance company of their choice. These changes have a fundamental effect on the market dynamics. This has opened up a need to change the existing policy administration systems. The majority of the insurance companies have old legacy systems, and most of them have been built in-house. Changing the existing systems is a headache for the IT departments. In some cases, it is less risky to replace the whole core system and buy COTS (commercial off the shelf) standard policy administration from a system vendor.
How Profit Life&Pension (PLP) fits in
I have been involved in many sales cases ranging from full replacement of core systems at large insurance companies to start-ups with no legacy and need for lighter systems. In every discussion, we have proven that PLP is a system that can be tailored to fit the client’s need. The uniqueness of PLP is that it is modular and fits for an incremental implementation approach. PLP grows with the insurance company’s needs. The initial investment is lower, hence less risky compared to other solutions. The most recent project at Länsförsäkringar, where they replaced the old pension outpayment system with Profit’s solution proves the modularity and flexibility of PLP. We combined two existing modules from PLP and included Swedish specific payment standards in order to satisfy Länsförsäkringar’s need for a modern outpayment system. It was also clear from the start of the project that the new system will be a standard module in PLP and not a proprietary solution for Länsförsäkringar.