Defined benefit (DB) schemes should consider non-price factors when assessing buy-in or buyout insurers, Hymans Robertson has said.

The consultancy said that while overall cost remains “crucial” for DB pension scheme trustees assessing options as their schemes reach buyout and wind up, non-price factors, such as administration capability, operational considerations, and insurer’s environmental, social and governance (ESG) targets, should also be considered.

Hymans Robertson's paper outlined why DB trustees need to assess other non-price factors, including comparing administration capabilities, operational considerations, member experience and security and governance.

The consultancy emphasised aspects such as the data cleansing process, the insurer's ability to adhere to timelines while maintaining flexibility, and the provision of strong administrative capabilities as key considerations.

The report also recommended that trustees assess whether the insurer has adequate security and governance measures in place, including cyber security, complaints handling, and risk management processes.

The firm said ESG factors are receiving more focus too and that insurers should show that their approach to ESG is not just a tick-box exercise.

The report further proposed that advisers evaluate insurers’ ESG credentials to enable trustees to make comparisons, including factors like their net zero targets, participation in relevant initiatives, and compliance with Taskforce for Climate-related Financial Disclosures reporting requirements.

Hymans Robertson senior actuarial consultant, Paula Haughton, said: “As DB schemes continue to head towards buyout, factors other than price are becoming increasingly important to their trustees. Administration is high on the list of concerns.

“The insurer’s financial strength, how it manages risks stemming from its operations, investments, and use of funded reinsurance also form part of discussions.”

She suggested that choosing the right insurer was not a straightforward decision and encompassed a wide range of factors dependent on the scheme's circumstances, timescales and budgets.

However, she said “clear upfront” discussions about what is important before insurer selection was “vital to ensure a good match is made”.

“It helps with productive discussions and builds confidence that the journey after buy-in will be smooth and efficient, with members getting a good experience,” Haughton said.

“The balance between price and other factors is a delicate one, but walking this fine line can only bring confidence to the buyout experience.”

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