September is often a time when people, especially students, finish reflecting on the past year and begin planning how the coming year will be a better one. If this type of reflection is aimed at the retirement services industry, students like me can uncover some areas ripe for improvement.

As I wrote in my opinion piece, Observations of an Industry Newcomer, I’ve spent the majority of my career in the global insurance technology sector, but not too long ago my focus expanded to include the U.S. retirement services industry. As I began to educate myself about the space, I realized there are at least two significant problems:

  1. Unnecessary recordkeeping complexity
  2. A lack of available technology

When my team and I began our journey, we evaluated the current state of the industry and quickly realized that the existing technical infrastructures included layers upon layers of recordkeeping complexity across an array of disparate systems and subsystems. Shifts in the intended purpose of defined contribution programs, increased regulatory oversight of retirement plans, and the evolution of myriad tax laws each contributed to CIOs’ challenges by making the platforms more complex and unwieldy.

What can be learned by studying the retirement industry?

With each change, system patches and/or subsystems were needed to accommodate the limited capability of the base platform. The ecosystem required to manage daily operations is extensive and complicated, causing its own technological challenges with respect to integration and risk.

I also noticed the general lack of available technology for providers to choose from. Firms are sinking considerable investments into the maintenance of legacy platforms and the few emerging new solutions have yet to gain serious traction. I have also found the influx of new technologies to be lagging significantly behind other financial services sectors. This is most likely because the barriers to entry are immense, given the need for any alternative technology to effectively manage significant variability, and be sufficiently agile to support the inevitability of continued future changes.

The life insurance industry, on the other hand, has benefited from a steady influx of new technologies. This is mainly because the laws governing the U.S. life insurance markets have been relatively stable over the past twenty years. This stable environment has given both the insurers and the supporting technology firms the ability to predict changes, and adequately assess, develop and implement advanced infrastructures.

Most industries consider technology advancements to be an offensive weapon when competing in the marketplace. Why shouldn’t the same hold true with respect to retirement services? My next blog post will explain why some retirement services providers are still hesitant to modernize.

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