Insurance companies aren't exactly known as pioneering when it comes to digital technology. Most are entrenched in paper-dominated transactions with consumers and their financial advisers.
Annuity providers, however, are making a synchronized effort to do business in a more 21st century fashion. That's especially apparent in the realm of 1035 exchanges: tax-free transfers from one annuity contract to another.
"I think the whole industry has decided this needs to happen," said Kevin Kennedy, head of individual retirement at AXA Equitable Life Insurance Co. "All the carriers have really stepped up."
Annuity products are often derided as being expensive, complicated products, a criticism that's compounded by cumbersome industry infrastructure that often creates a months-long exchange process. Technology can reduce the time line substantially, executives said, likely to within a week, start-to-finish.
There are four primary components in an expedited process, each one electronic: applications, signatures, fund settlement and transaction paperwork between insurers, according to Jeremy Kachejian, AXA's director of business technology and operations. He expects the bulk of insurers to phase in these components by the end of 2020.
There are tangible benefits to be had for insurers from this exercise. The Insured Retirement Institute, an annuity trade group, said in its recent state-of-the-industry report that measurable improvements in transaction efficiency can "help maintain or improve profitability levels in a lower compensation environment."
Overall annuity sales of $203.5 billion in 2017 were the lowest in 16 years. Figures haven't been released yet for 2018, but sales were expected to improve on the back of higher interest rates and the death of the Department of Labor's fiduciary rule.
Data for sales from 1035 exchanges aren't available. But according to the IRI report, while anecdotal evidence suggests exchanges represented about 60% or more of total sales in the 2000s, they are a "much lower" percentage of variable annuity sales today.
IRI has formed a working group to examine all annuity transactions, which include 1035 exchanges, to determine where technology can improve efficiencies, said spokesman Dan Zielinski.
But observers also see a potential risk in speeding up 1035 exchanges: an increase in conflicted sales. Some brokers have used 1035 exchanges as a way to "churn" clients' annuity contracts, as brokers make a new commission with each exchange.
The Financial Industry Regulatory Authority Inc., which regulates the brokerage industry, said in a recent report detailing examination findings that it uncovered deficiencies around variable annuities, including unsuitable and "largely unsupervised" recommendations relative to annuity exchanges.
With streamlined processes comes greater volume and the potential for more abuse, some experts fear.
"Maybe more bad actors would get missed," Sheryl Moore, president and CEO of consulting firm Moore Market Intelligence, said.
But the industry also wants to improve the client experience, thereby improving the adviser experience as well, Mr. Kennedy said.
The broader life insurance industry also is undergoing a digital renaissance of sorts. Some insurers have started using algorithms to speed up policy underwriting for consumers — to just a few weeks. A handful of more cutting-edge players, such as Haven Life and Protective Life Insurance Co., are using what's called "accelerated underwriting" to deliver policies to consumers on the spot and without a medical exam.
The financial advice industry also has been disrupted by robo-advisers, which have risen to such prominence over the past few years because they have done what traditional players haven't: apply technology to deliver low-cost portfolio management and financial advice to a broad base of consumers.
Ms. Moore said it's not surprising annuity firms would move toward digitization. Although annuity business today is done primarily through broker-dealers, insurance agents and banks, she sees the future as being direct-to-consumer, which requires insurers to automate 1035 exchanges.
"I think every company that sells a financial services product is looking at that as a potential reality," said Mr. Zielinski of IRI. "The people in the business now don't want to play catch-up."