December 1, 2013
Colorado Springs, CO
Conducting business electronically is now the expectation of
the general population. It's no longer a "nice to have" for
some; it's expected by the public majority. With the advent of
mobile technology, increased online consumerism, and a growing
demographic of digital natives it would behoove an aging
industry to keep up with its own future.
Recently I was able to log into my previous employer's "limited
elections" 401(k) website, initiate a transfer and move my
paltry savings into a completely new account without ever
touching a pen and paper. The entire process was fast and easy.
Most importantly, I had the expectation going into the process
that I could do it electronically. If my 401(k) provider's
website had provided me with a form, which then required a wet
signature, and me to actually mail it in, I would have wondered,
"Why?"
So I ask the question, "Why is it that life and annuity
insurance carriers are still processing
exchange/transfer/replacement business via paper?" I am sure
that when the question is phrased this way any number of people
you ask can give you a myriad of reasons. Many of which
are relevant to their own particular view of the world.
Similarly, when the ancient Greeks asked why the gods were angry
when thunder and lightning covered the sky, any number of people
came up with reasons relevant to their particular view. However,
what if we ask the question differently, "What will it take for
life and annuity insurance carriers to process
exchange/transfer/replacement business electronically?"
I suggest that a small manageable change in perspective could
have a dramatic impact to our business.
First, let's look at eliminating the ink on paper. The barrier
as I see it is to get approval across all carriers as to what
would be required for entity validation and be acceptable for
electronic signature. Can the surrendering carrier validate that
the person signing the exchange/transfer/replacement paperwork
is the same person with whom they have the contract? I call this
"entity validation," and there are many industry examples along
with UETA and ESIGN regulations that dictate what's required. It
appears to me that this has already been agreed to by the
industry as they process new business. Why couldn't this also
apply to exchange/transfer/replacement business? Initiating
written agreements between carriers that place the
responsibility of validation on the requesting carrier or
distributor would resolve the entity validation barrier. Short
of written agreements between carriers, alternately the
surrendering carrier could require validation that the process
of entity validation meets UETA and ESIGN or even industry
cooperatively defined guidelines. Either scenario instills
confidence that the process is sound.
Next, let's look at money flow. Today the surrendering carrier
must process the physical signed paperwork, they must do their
entity validation and route through their unique internal
process. "Entity validation" in this instance is likely
referring more to the future potential for the carrier to
validate client requests through handwriting analysis in the
event of a contested transaction, not the actual process of
verifying the request up front, all the more unlikely in
carrier-to-carrier exchanges for a mutual client. Ultimately, if
the carrier surrenders the funds, they generate a physical check
and it's placed in the mail. I see this as an opportunity to
eliminate costs and to provide accurate, auditable controls
around the business process.
Now if the two are combined and the
exchange/transfer/replacement paperwork is allowed to be
electronically signed, then it can also be electronically
transmitted to initiate the process at the surrendering carrier.
The surrendering and proposed new carrier can still communicate
utilizing the existing processes in place today, but to the
client and agent you've just eliminated the ink and paper
requirement and dramatically improved their experience. Once the
surrendering carrier has processed the business and initiates
the release of the funds, if they could electronically transmit
the released funds from one carrier to another leveraging the
DTCC's existing hub, I suspect the project costs required to
build out such a service would have a tremendous ROI.
And in reality with all the project engagements, we know carrier
build out of a bi-directional money transfer process is much
larger than I'm proposing here. However, if gained through an
industry commitment to build it out over time and through a
phased approach, it becomes possible.
And if the money movement is a barrier for whatever reason,
allowing the exchange/transfer/replacement paperwork to be
electronically signed and transmitted still provides such a
dramatic improvement to the agent/client experience that it
appears to be something that should have been done years ago.
We don't need everyone to stop believing in paper being impossible to overcome all at once. It takes a few willing to ask different questions than the ones being asked. The question is not "Why are the gods angry?" The question is, "How can we harness lightning so that others may believe in electricity?"
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