Ask most financial services distributors their sentiments about selling and servicing annuities, and a good number of them might reveal their own personal horror stories about a promising selling opportunity gone bad.Many producers face an uphill climb to precisely crafting annuities for both personal and institutional customers. Influenced both by state regulation issues and corporate strategy decisions, annuities often undergo a myriad of permutations in their design. With a product line that's often a moving target, brokers have found it tough to pinpoint products for customers' needs.
"There is much variation among the design of annuities, all set apart by various business rules and parameters," says Eric Denham, vice president for product development for Columbus, Ohio-based Info-One, a provider of Web-based annuity product solutions.
Financial service distributors recently became exposed to a new round of adversity: processing an annuity in an electronic format.
The very essence of annuities and the hodge-podge of rules that govern them made Web-based data exchange difficult. This is compounded by the disparate data exchange platforms from which all the players in the process operate.
To cater to producers who might be willing to market a larger volume of annuities, insurers and other financial services providers have made strides to make the process easier.
Edison, N.J.-based NaviSys Inc., for example, recently launched a new pricing structure to expand the use of NaviSys Front Office for life and annuity order-entry. NaviSys' Web-based offering is now available to both distributors and carriers under a one-time software license. NaviSys is regarded as the only player in this market offering this pricing option, which caps the total cost of the system and does not levy the per-transaction fees prevalent in the market.
Agents have access to client and account history information, along with licenses and trading restrictions to enable validation and confirmation.
An affordable solution for distributors is not the only nuance. Because many brokers/distributors conduct business with a wide range of financial services providers, they need a system that can provide a single-entry, multiple-company interface.
To address this, Leesburg, Va.-based AnnuityNet Inc. revealed earlier this year that it would relinquish to the industry its formerly proprietary standard for transmitting and exchanging annuity account and transaction information across the Internet.
By relinquishing its intellectual property and offering it for use as an open standard, AnnuityNet hopes to support and accelerate efforts by the National Association for Variable Annuities (NAVA) and key industry participants toward creating a universally adopted industry standard for annuity application data exchange, says Shane Chalke, CEO of AnnuityNet.
Untapped potential
Streamlining the processing of annuities is a crucial strategy because a handful of industry observers see a powerful marketing opportunity at hand.
In fact, many of the providers believe with the proper technology, they can elevate annuities to a volume-growth level comparable with mutual funds and other investment products.
But maximizing the power of an annuity can only occur if processors reconcile the inefficiencies. Perhaps reflecting the lack of stability in this space are numbers: The past 12-month period has been a dismal one for the annuity segment-particularly variables. Alexandria, Va.-based NAVA reported that the combined net assets of U.S. variable annuities decreased 7% to $829.5 billion at the end of the second quarter, as compared with the first quarter 2002. Total variable annuity premium flow, or total sales, for the second quarter represented a 1.8% decrease from second quarter 2001.
These numbers could have been precipitated by a number of trends, the least of which is a failing economy that has investors guarded about where their money goes.
But it could also be owed to some bad experiences that consumers had when they launched a trade. "To process annuities manually often has meant touching an application more than once because of inaccuracies in the system," says Info-One's Denham. "I would say that 50% of annuity orders are not regarded as good orders. We want to improve that good-order rate to better than 90%."
New world order
Established in 1998, AnnuityNet recognized the challenges financial services providers and distributors face in marketing annuities.
Recognizing a void in the marketplace for an electronic trading solution, AnnuityNet developed a fully automated, Web-based and end-to-end transaction processing solution. The solution links brokers with a wide range of insurance carriers for the exchange of information and money settlement during the sale of variable and fixed-rate annuities and life insurance products.
Producers who align with the provider can complete online annuity applications at their desks or from a laptop in a customer's home and pass them directly to carriers.
Other annuity processing solutions are also garnering notice. Info-One's VARDS trading platform enables a user to log in once regardless of the various types of business they want to conduct-saving a significant amount of time in the process.
"VARDS takes manual trading of annuities and places the endeavor in a smart online environment," Denham says. "And, rather than processing on a proprietary platform, activity occurs on an open-architected trading platform."
Boston-based Manulife USA recognized the value of electronic order/entry. When performed offline, it could take a producer an average of 15 minutes to complete. When performed online, it could be boiled down to a couple minutes.
Manulife has a portfolio of six variable annuities distributed through its own internal network as well as through other arrangements, such as with Merrill Lynch Insurance Services. Manulife's variable annuity products vary by way of features such as surrender schedules, living benefits, guaranteed earnings multiples and many other riders that can be built into an account.
To streamline these efficiencies, Manulife examined its options before partnering with AnnuityNet. Manulife signed on to the trading platform in late 2001 and then activated the system in earnest this past September, says Rob Stanley, an executive overseeing variable annuity lines for Manulife.
Systems integration
In laying the groundwork, Manulife engaged in extensive systems integration to link its annuity product data bases-including all the business rules that govern the product line-with AnnuityNet's technology.
AnnuityNet software takes a registered insurance representative through a logical series of choices, helping to ensure the accuracy of customer information throughout the sales process.
Each application is pre-populated with account information from a financial services correspondent brokerage system, such as name and contact data. AnnuityNet's automated "wizards"- built-in suitability and compliance checks-help investment professionals complete the application process.
This automated process reduces common errors that can prevent "not in good order" business from reaching the carrier. After the account is established, the annuity values will appear on a carrier's brokerage system for a consolidated view of the client's total portfolio.
Every annuity application is specifically matched to each insurance carrier's annuity product available through AnnuityNet, which has a total of 18 distributor partners and 24 carriers. The technology checks a carrier's business rules in real-time and then submits the order for processing. Whenever Manulife's business rules have to be modified, AnnuityNet captures the changes in real-time and updates them with its distributor network.
With AnnuityNet, an order can be entered before the markets close, and once data is collected and transported to a carrier, an annuity can be processed prior to the close of that business day.
AnnuityNet also offers Manulife single sign-on technology whereby a broker who logs onto AnnuityNet Works can navigate to a particular carrier's annuity product line in one visit and have all the products at their fingertips without having to log back on with each individual search.
"We used to have to cope with variable annuity orders where 50% of all orders processed were in the bad-order category. This occurred due to several inefficiencies during processing," Stanley says.
"Missing information, such as a beneficiary's name or the state in which the product was sold, agent appointment data and sub-accounts that didn't add up to 100% were all elements that undermined our efforts," he says.
But through electronic efficiencies, a broker that does business with Manulife "has all of our business rules at his fingertips," Stanley explains.
"He can't proceed in processing an annuity trade unless all these rules are accounted for."
