The National Association for Variable Annuities plans to announce today that it is leading an effort to implement standards to simplify paperless sales of annuities.
The centerpiece of the trade group’s Straight-Through Processing Standards Initiative is a set of standards created with input from 34 insurers and distributors. The group aims to line up regulatory approval for the standards and help the industry implement them.
“It’s going to make selling the products a lot cleaner and simpler, which I think will ultimately result in more annuities being sold,” said Mark Mackey, the Reston, Va., association’s president and chief executive officer.
Deborah Tucker, a vice president at the association, said distributors have been moving toward partially paperless purchases to reduce paperwork errors and save money by doing away with paper mailings.
Mr. Mackey said, “We would expect that within five years, the vast bulk of the industry will have moved to electronic processing.” Few or no annuity manufacturers or sellers use paperless means to handle all aspects of sales, he said.
The initiative encompasses all categories of annuities: deferred and immediate; qualified and nonqualified; and variable, fixed, and indexed annuities. Companies that worked on it include Allianz Life and Hartford Life, Merrill Lynch, MetLife, Morgan Stanley, and Wachovia Securities.
It reconciles the 24 sets of standards now in use across the country. To comply with state and federal laws and regulations, the group said it chose the most rigorous requirement from each set of standards.
The uniform standards for paperless, or straight-though, processing address technical matters, such as electronic signatures, the encryption of private information and records management.
But they also address suitability standards and procedures meant to ensure that annuities are not sold to those who would be better served by other types of investments.
The trade group and the companies involved in the initiative want to make sure automated transactions meet the stringent regulatory requirements around annuity sales. The group also cited the anticipated increase in demand for annuities among baby boomers approaching retirement, and the “broad recognition,” it said, that manual, paper-based processes are inefficient.
Millions of dollars of mailing costs for prospectuses alone should be eliminated through automation, Mr. Mackey said. “The more you can remove human beings from the process, the more you’re going to cut down on your labor costs,” he said.
The new standards would be voluntary for insurers and distributors. Consumers would have to choose the electronic route, but the increase in people conducting their financial affairs online means an increasing number of them are likely to do so, Ms. Tucker said.
“The industry does think that there is going to be lot more desire on the part of clients to do business electronically,” she said.
Under the paperless model, a consumer would meet with an annuity sales representative and agree to purchase certain products, Ms. Tucker said. He would later receive an e-mail linking to a document confirming the products he intends to purchase and agree to it by using electronic signatures.
Once the suitability review has been completed, the consumer would be e-mailed the contract, Ms. Tucker said.
The variable annuities trade group also hopes to persuade regulators to accept a simplified prospectus model that would include hyperlinks to more detail. The change would make information clearer to clients by streamlining the main document, she said.
Mr. Mackey said the next step is to lobby regulators — the National Association of Securities Dealers Inc., the Securities and Exchange Commission, and 50 state insurance departments — to accept the standards. He said they could be put into practice even if regulators approve them before the simplified prospectus proposal. “This is completely modular,” he said.
