The variable annuity industry continues to evolve and adapt to the conditions of the modern market. However, some things remain the same -- such as the current practices for compliance fulfillment. In addition to having hidden costs and being environmentally unfriendly, the present tri-annual mailing approach includes some potential unseen business risks, and what you don't know can hurt you.
Accordingly, you may want to think about modifying your compliance fulfillment practices in order to stay competitive in the industry. If you're not convinced you could benefit by doing so, the following five reasons may change your mind:
1. Over-communication typically leads to over-spending.
Annuity carriers are tasked with annually delivering product-specific documents to customers, and traditionally, many have chosen to simply send one "Big Book" of all the available investments.
However, the problem with this approach is that most investors only have a few holdings. Over-delivery can overwhelm clients, waste materials and create a poor customer experience, all while costing companies a substantial amount of money in production expenses. Additionally, this can create risk for businesses, as the Financial Industry Regulatory Authority (FINRA) imposes fines on organizations that fail to adequately deliver prospectuses.
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2. Personalizing fund prospectuses is largely beneficial. Not only is the big book prospectus format a major expenditure, it often deters customers by overwhelming them with volumes of irrelevant information. A typical fund prospectus features 51 subaccounts, yet the average policyholder only invests in four of these. It's not surprising that, according to industry reports, two-thirds of investors never even read their prospectus. Personalizing information for specific investors' holdings both reduces the page count and ensures that clients receive concise relevant data they're more likely to read -- helping companies make more effective use of their resources and provide better service.
3. Brokers have embraced the summary prospectus, and so should VA carriers.
In an effort to remain competitive in the modern-day market, it is imperative the VA industry follow the path carved out by other financial institutions. For instance, the summary prospectus has reduced costs for numerous brokerages and delivered a better customer experience to thousands of investors. This green solution boasts a smaller page count than big books, and while it holds less data, it contains more relevant information aimed at the individual recipient (who can also click the URL provided in the streamlined summary prospectus to get more in-depth information online). Currently, about 80% of VA sub-accounts have a stand-alone summary prospectus, as this component is high on regulators' radar. Unless you want to get left behind by your competitors, it would be wise to join the majority and adopt this contemporary approach.
4. E-delivery is the wave of the future.
Just as they are turning ever more frequently from newspapers and magazines to online media, consumers are increasingly adopting digital solutions in their everyday lives. In the brokerage channel, e-consent rates are as high as 30% is becoming atypical for many firms. However, VA channel e-consent rates have been low historically, ranging from 5% to 10%. Though the transition may be a big change for businesses, this can be advantageous for many, as this low-cost alternative is the most investor-friendly approach and is also environmentally sustainable. If you turn on e-delivery, you could win on many fronts and elevate your business significantly.
5. Prospectus delivery is receiving greater scrutiny.
Another great reason to take the leap forward and make the switch to state-of-the-art modern compliance fulfillment practices is regulators' increased interest in monitoring prospectus delivery. In fact, FINRA fines for inappropriate distribution of these materials is currently at an all-time high, as the popular tri-annual mailing strategy may not fully meet current compliance requirements. It has been found that this traditional approach to sending prospectuses often leaves sizable gaps as it can neglect to deliver prospectus updates and supplements during the year.
The truth is this: Unless you change your current approach, your costs will continue to increase and you will run the risk of being left behind by the competition. Paper and postage costs will only rise in future months, and the growing number of offered sub-funds will also serve to drive up expenses. New consumers have changed the game and now seek to receive their investment information in new ways.
E-delivery is gaining prominence with many companies within the industry, and failing to adopt cutting-edge tactics could be detrimental to your bottom line. The leading firms anticipate change and alter a company's overall workflow in order to adapt.
Len Driscoll is Vice President, Broadridge Financial Solutions, where he oversees sales, marketing, product and client services for Variable Annuity Regulatory Communications and Services.