Compliance

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Corey Fiedler
Corey Fiedler
Commentary
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Bringing Annuity Compliance Fulfillment Into the Digital Era

How can insurance carriers solve the single-digit e-consent dilemma for annuities?

Demographic and market trends in the US are favorable for manufacturers of annuities. An aging population, the potential for higher interest rates, demand for tax-efficient investments, and investors' preference for steady income streams bode well for growth in the annuity market. The LIMRA Secure Retirement Institute anticipates that overall annuity sales will increase by 8% in 2014, with fixed annuities up 16% and variable annuities up 3%.

One challenge that remains is the need to adapt to the rising consumer appetite to receive information -- including investor communications -- digitally. Failure to address this will result in unnecessary costs for insurance companies and a negative experience for clients.

Has the digital era bypassed annuity compliance fulfillment?
Today, 38% of the world's 7.1 billion people are on the Internet, 26% are active social network users, and 93% are mobile subscribers. In the US and Canada, 81% of the people are on the Internet, 56% are active social network users, and 101% have active mobile subscriptions (indicating multiple subscriptions for some individuals).

The digital era is definitely here, but it seems to have bypassed the annuities channel, where e-consent rates of 5% are the norm, rather than the exception. Contrast this with the brokerage channel, where e-consent rates of 30% or higher are not uncommon.

[E-delivery of prospectuses and other communications is gaining momentum in the annuities industry: 5 Reasons Why Annuities Carriers Should Change Their Compliance Fulfillment Practices]

Why the disparity?

E-gap between insurance carriers and broker-dealers
The traditional "tri-annual" compliance fulfillment process has a gap between the insurance carrier that is obligated to deliver materials and the distributing broker-dealer that owns the client relationship and client email addresses. Because the carrier has only the physical mailing address, it must rely on sending this information out the old-fashioned way -- via mass-mailed printed books -- even if an end customer has indicated a preference to receive this type of information electronically for investment products sold by the same broker-dealer.

Compounding the problem is the fact that these mass mailed "Big Books" typically contain all of an annuity manufacturer's sub-funds -- 51 on average for variable annuities (VAs), whereas the average policyholder only owns four of these. That's a big expense for the insurance carrier and a poor experience for the client.

But how do you fix it?

Insurance companies have had few options other than to mail e-consent forms to annuity clients, but this approach has not been effective in moving the dial. As a result, paper-based investor communications remain status quo. However, these documents cost more to print and deliver than electronic communications, and it takes longer for policyholders to receive the information.

Some firms have tried contests and giveaways promoting e-delivery as a "green" solution. Despite these efforts, e-consent rates remain low, and the dependence of delivering print materials is high. As a result, insurance carriers are forced to deliver print materials even though an estimated 30% of those who receive paper (about 7 million policyholders) would prefer to receive this information electronically, according to recent Broadridge Financial Solutions research.

Building a bridge
The challenge is to connect the insurance carrier with the broker-dealer without disclosing client information. This can be done through the fulfillment service provider that physically delivers investor disclosure materials, either via print or by e-delivery. This "silent partner" maintains the email addresses, ensuring the insurance carrier can leverage the cost efficiencies of e-delivery while the broker-dealer can deliver a better client experience.

This creates a win-win opportunity that can be implemented through new technology, including matching techniques that map broker-dealer account information with data on industry account and consent preference databases.

When an annuity policyholder is matched to the corresponding broker-dealer's e-consent preference in the database, that individual's delivery preferences are updated from paper delivery to e-delivery. A policyholder who opted to receive mutual fund disclosure documents (i.e., the annual prospectus, semi-annual report, and annual report) by e-delivery, would also receive all future annuity disclosure documents electronically. This results in an economical, eco-friendly, and investor-friendly compliance fulfillment approach powered by the latest technology -- matching technologies.

For example, initial tests of Broadridge's Consent Accelerator, which utilizes this new matching technology, have matched 10-20% or more of all account files received. The cost ramifications are significant. Broadridge estimates savings of $5-6 for each policyholder consent match; the estimate is based on industry averages for tri-annual annuity mailings. This can represent savings as much as $500,000 to $1 million annually. And these savings will grow proportionally as e-consent rates climb and paper and postage inflation increases.

The world is going digital, and client expectations for e-delivery of regulatory communications have been rising. However, the annuity channel has been an outlier for e-delivery growth. New industry solutions can fill a gap in the traditional compliance fulfillment process to "patch" this bug and provide substantial savings for those insurance carriers ready to take the leap and improve the experience for investors.

Corey Fiedler is a Senior Director, Product Management at Broadridge Financial Solutions. She manages development of the Broadridge Consent Accelerator utility, in partnership with the industry's leading broker-dealer firms, among other product initiatives at Broadridge. ... View Full Bio

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FPS Insurance
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FPS Insurance,
User Rank: Apprentice
12/22/2014 | 9:00:11 PM
Re: What do customers want?
During this time that almost everything around us revolves around technology, it is just right for annuities and other insurance products be accessed online. Information dessimination and access to the details of their accounts are much easier. With the ease of use, there will be more people who will get these products in the future.
KBurger
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KBurger,
User Rank: Author
12/11/2014 | 3:59:56 PM
What do customers want?
It's interesting that annunities is kind of an outlier as more aspects of the insurance business go digital. I would imagine that, in addition to the regulatory and legacy system obstacles to change, demographics must play a role, too. That is, as annuities customers eventually start to trend younger & more diverse, those customers are NOT going to want to be receiving paper documents and will pressure their providers -- whether insurer, broker/dealer or whoever -- to provide that information electronically. Thanks for this analysis, Corey.
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