Snapshot

Harnessing the Power of Electronic Exchange Processing.

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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