VA industry unveiling electronic processing

Feb 12, 2007 @ 7:22 am

By Gary S. Mogel

NEW YORK — A trade group for the variable annuity industry today announced a technology initiative intended to save time and money for VA distributors through streamlining and standardization.

The initiative applies to fixed annuities in addition to VAs and is expected to be implemented by 2008.

“The [straight-through processing] system is designed to make variable annuity business as easy to transact for brokers and clients as mutual fund business is,” said Clifford Jack, chief distribution officer for Lansing, Mich.-based Jackson National Life Insurance Co. Mr. Jack, who works in the insurer’s Denver office, is vice chairman of the trade group the National Association for Variable Annuities in Reston, Va.

Distributors welcome the idea.

“Better annuity processing is something my firm is very interested in providing to our advisers,” said Doreen Griffith, senior vice president and chief information officer of Securities America Inc. in Omaha, Neb.

Like many independent broker-dealers, it’s a high priority here to make sure the advisers have access to the best ways to process transactions, she added.

“The entire mutual fund process is now fully automated; it is a seamless transaction,” Mr. Jack said. But the same cannot be said for VA processing, he noted.

Distributors are open to increased use of technology, as VA procedures now are paper intensive.

“VA processing is cumbersome, with lengthy applications and forms that have to be filled out for each client,” said Richard Dragotta, managing partner of Integra Investment Service LLC in Rutherford, N.J., which is affiliated with LPL Financial Services of Boston and San Diego, and manages $100 million. Some of the paperwork is state specific, such as VA “replacement forms,” mandated by New York and New Jersey, in addition to the Internal Revenue Code Section 1035 filings, he added.

With baby boomers about to retire, there is likely to be a lot of money migrating to variable annuities, so more-efficient processing is welcome, Mr. Dragotta said.

Uniformity is sought

The electronic system has 24 sets of standards intended to make uniform key VA processes that historically have vexed wirehouses, broker-dealers and other annuity distributors — such as complying with federal and state securities laws, determining suitability, using e-signatures, ensuring data privacy and managing records.

“The STP initiative builds upon NAVA’s five-year effort to develop data conformity and technology standards to help the annuity industry improve business processes and enhance customer service,” said Mark Mackey, chief executive of NAVA.

“Twelve insurers can mean 12 sets of suitability guidelines,” said NAVA spokeswoman Deborah Tucker. “Plus there are a minefield of regulations, some federal and some state, many of which overlap and have the same purpose,” she added.

The standards were developed by a coalition of VA insurers and distributors. Insurers included Hartford Life Inc. in Simsbury, Conn., MetLife Inc. in New York, and The Principal Financial Group Inc. in Des Moines, Iowa. Among the distributors were Merrill Lynch & Co. Inc. and Morgan Stanley, both in New York, and Raymond James Financial Services Inc. in St. Petersburg, Fla.

The timing of system implementation is up to the distributors, Ms. Tucker said. But “sometime in 2008” is a general target date for having most key VA processes electronic, she added. Ms. Tucker also said that the cost of implementation would vary widely by distributor, depending on the systems they already have in place and what has to be modified.

But implementation costs likely will be manageable for most firms. Much of the required electronic-processing technology — including electronic order entry and e-signature capabilities — already exists, and numerous vendors are providing partially automated solutions, Mr. Mackey noted.

In addition, NAVA is enlisting support from other financial services trade associations to secure widespread acceptance of the system, he added. Those include the Financial Services Institute Inc. in Atlanta, the North American Securities Administrators Association Inc. in Washington and the Securities Industry and Financial Markets Association in New York and Washington.

NAVA’s legal counsel has determined that the system does not require regulatory approval, Mr. Jack said. But NAVA is working with Washington-based NASD and the Securities and Exchange Commission, as well as with state securities and insurance regulators, to keep them in the loop and to address any concerns they have, he added.

No concerns have been expressed by regulators so far, according to Mr. Jack.

“Regulators seldom complain about systems that provide them with more information,” he said. “For instance, if they’re concerned about sales of VAs to the elderly, STP would allow quicker data flow to determine suitability.”

The main obstacle to implementation is “having to herd the cats,” Mr. Jack said. “There are many broker-dealers, insurers and others involved, and they do things similarly but differently. There are no set standards right now. Trying to create a process that fits all is no small task.”


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