Why Your Digital Annuity Business Probably Isn't Really Digital

I hear confidence in responses whenever I ask insurance carriers or distribution firms if they've digitized their annuity business.

"Yup, we're digital!"

But maybe that's not the best question to ask. Perhaps a better one would be, "How digital are you?" There's a real difference between digital and Digital. So, you may call your business or process Digital, but is it?

The move to electronic order-entry platforms for annuities years ago was significant, but in the grand scheme it only represents about 10% of what's required. And it hasn't solved the nagging issue of not-in-good-order findings, or NIGOs, like most expected.

A recent Insured Retirement Institute study shows applications coming through e-order entry platforms still experience a NIGO rate of 40%. In an age of innovation, it's disappointing that four out of 10 apps are still being submitted with simple-fix errors that technology could easily prevent.

It may be hard sitting here in 2023 to believe this, but even while distribution firms across channels adopted digital applications, some annuity business is still done via fax.

That sounds like a joke, but I recently spoke with an advisor who works for a major distribution firm that had to buy a fax machine from eBay just for annuities.

There was a time when taking a paper application and digitizing it was revolutionary. That time's passed. It's a cog in the machine that's missing a lot of other cogs. By understanding that, our industry must finally realize that it's time to once and for all connect the other dots in the ecosystem.

A Broken Experience

Before the industry can move forward, we must fully recognize what's held us back. When the only part of your "digital operation" that's digital is the application, it's like telling someone you have a smart home just because you own an Amazon Echo.

With a true smart home, a homeowner has simple, easy access to controlling their water heater, thermostat, lights, door locks, security systems, and more. That's a smart home— just ask Alexa. It's more than just one component—it's the whole experience.

The process is disconnected and unnecessarily complex today.

Research happens in a different environment than the proposal or illustration, which often lives independently of the account opening system that isn't the same platform the advisor would use to manage and report on the annuity.

Worst of all, the annuity isn't integrated into the client's overall financial plan or into the advisor's wealth management dashboard.

From my own personal experience as an annuity owner, not having my annuity included in the statement makes an important part of my retirement plan feel like a bolted-on afterthought. It makes it more difficult to see the total picture and the impact the annuity has on my portfolio.

An advisor must jump from platform to platform, logging in and out to research hundreds of products from more than 20 major carriers.

According to one advisor I spoke with, they use an average of six different platforms to write and manage annuities.

This is the opposite of what it means to run a modern business. Compare what it's like to open and manage an annuity to a mutual fund, ETF, or managed account. It's a night-and-day difference.

Technology has long been a driver of growth for financial services.

Way back in the 1980s and early 1990s, technology allowed mutual funds to go mainstream making them a part of everyone's portfolio.

More recently, albeit on a smaller scale, look at what's transpired in structured notes over the past five years.

Structured notes embraced technology to enhance the user experience and the construction of the products to make them available to a wider market.

The time to purchase went from days to hours, costs fell, and distribution moved from high-commission brokerage to fee-based or brokerage.

The result? Annual sales of structured notes jumped from $40 billion in 2016 to around $100 billion by 2022, according to StructuredRetailProducts.com. The same could happen for annuities.

It's time for the industry to demand a simpler, better way.

If we want the annuity business to grow over the long term and not just rise and fall with interest rates and if we truly believe these products can benefit more people than they're serving today, we must redefine what it means to be Digital, not just digital.

Michael Kazanjian is the chief marketing officer at FIDx, a firm that supplies insurance products to wealth managers who help with retirement planning.