Why Should an Annuity Be Harder Than a Mutual Fund?

Paul Tyler (00:02) Hi, this is Paul Tyler, and welcome to another great episode of the L&A Hub Podcast. We've got a great guest, and we're going to talk about probably one of the most monumental things that have happened in the world of annuity application processing, at least in the last ten or fifteen years. With us we have Katherine Dease, Chief Technology and Innovation Officer at IRI, who has spearheaded the Digital First initiative. Welcome, Katherine.

Katherine Dease (00:37) Thank you. I hope I get to live up to the word monumental. Happy to be here.

Paul Tyler (00:41) You will. I think you'll get a trophy or a monument at some point for being the person who has probably made one of the biggest differences in what the annuity experience will be if we look back five years from now. That's my prediction.

Katherine Dease (01:01) I would love to take all that credit, but I'll just say we have an amazing team here at IRI helping lead these efforts. Hannah Pikus is our Director of Digital First Standards and is doing an amazing job. And we wouldn't be where we are without leaders like Zinnia and the DTCC and many other partners — the carriers and distributors. It's definitely a collective.

Paul Tyler (01:27) Thanks for the shout-out. But as you said, this isn't one company or one person. I think that's what you've done with the Digital First initiative. You've taken time, built a coalition. Sometimes you have to go slow to go fast. But you also need a very sharp vision of where you want to be.

Before we get into it, talk to people about your role, your background, and then tell people exactly what this Digital First initiative is that's been the focus of so much work in the industry.

Katherine Dease (02:04) My role as Chief Technology and Innovation Officer at IRI is to modernize the annuity industry. That can mean so many things, so when I started I explored the barriers — what were we actually trying to achieve — and we landed on a few objectives.

The industry needed to eliminate friction in the financial professional experience, to make it as easy as a mutual fund, as easy as the products annuities are up against in a portfolio. We need annuities to show up in more places, and that means lowering the barriers to integration across the industry. And we need to grow the market. All of these together help us retain more financial professionals and attract new ones. Third, carriers, distributors, and solution providers need scalable solutions that can be reused. That's what my role is, and that's the Digital First for Annuities strategy we crafted.

My history is on the fintech side. I was on the annuity piece for several years at Ebix, which is now Zinnia, and I was also chief product officer at Insurance Technologies for many years, with time at an e-signature vendor in between. So I've felt these problems in the industry personally. We build great solutions, and then we try to recruit for data — what carriers do you have, what distributors are using it. That's always the first couple of questions. That's the typical platform model.

What I realized coming here is that if we don't make it possible for the industry to speak the same language, we don't get network effects. Zinnia might have a certain set of carriers implementing a data point while its competitors work with different carriers, but if they're all speaking the same language, then all of a sudden, as an industry, you have an exponential number of carriers using it. That makes it easier for you to implement and lowers the barrier. That's what Digital First for Annuities is really trying to achieve.

Paul Tyler (04:44) We've seen results already. I do believe, like you, that we're not fighting for pieces of the same pie. If we work together, the pie is a lot bigger for the industry. Every study I read about why more annuities aren't sold comes back to the experience.

I know you're shooting for a 24-hour turnaround — and then, once you get it, the finish line probably changes. Talk to me about what the markers look like on the road you've set for everybody collaborating with IRI.

Katherine Dease (05:30) Great question. It's different by standard. We're not creating standards for the purpose of creating a standard. We look at the outcomes we're trying to achieve as an industry, set very clear measures of success, and then determine what we need to do to achieve them. Then we create a standard.

The one you're referencing is what the industry calls paperless replacements. That was initiated by a very small number of carriers — three — plus the DTCC and IRI, trying to get replacement business done within 24 hours. Remember I said financial professionals told us they need annuities to be as easy as a mutual fund. Mutual funds went to T+1. In the annuity space, replacements were taking upwards of an average of 18 days, and that was not acceptable to financial professionals.

So we solved it by creating an industry standard. It's clear rules of engagement for how carriers will transact replacement business. It doesn't change the consumer side at all — it's truly between the two carriers. And it has gotten the replacement transaction to occur within 24 hours. That's from submission from the order entry platforms, like Zinnia and your competitors, to the carrier. That carrier receives it, does what it needs to do, sends a data message — the Digital First RPL standard, paperless replacements — to the other carrier, and they settle with money in real time. It happens in 24 hours.

It's a 94% reduction in cycle time. It's significant. We have 12 carriers and the DTCC live, and by the end of the year — get this — we should have close to 30. Our dashboard is reporting 30. I think we'll see some slippage, but close to 30.

Also worth noting: we've had over 50,000 paperless replacement transactions with those 12 carriers. Every carrier that comes on adds exponential growth to those transactions. Financial professionals are feeling it. They're calling their carriers and distributors and going, what just happened? I purchased an annuity and it's already in my account the next day.

Paul Tyler (08:08) It's remarkable. This is the type of thing where people will say, really, it took thirty days to transfer money back when? And not that long ago.

To put a stake in that — for anybody who's been in the annuity business in any capacity, the transfer of assets has been a nightmare. Groups have chipped away at it. But I've worked at carriers where we had a desk of people just calling all the carriers trying to find out when the money was going to come.

So think about an agent who has had to explain a complicated product, convince somebody to trust them and trust the carrier, take the application — and now they have to wait another thirty days for the transaction to actually occur. That's a lot of time for people to question whether this was the right decision, whether they should put their savings here. Huge win.

Katherine Dease (09:15) Before you go on, I want to point out — that's all from the financial professional lens, which is a huge win, as you said. But there are also huge wins in efficiency, scalability, and cost reduction on the carrier side. I don't have the specific numbers, but carriers are reporting it's significant. Hopefully we'll have real numbers soon. It's just hard to get our hands on that.

Where carriers were having to touch those contracts every couple of days to check on status, check on everything — they don't have to do that anymore, because it's already settled.

Paul Tyler (09:56) It's something everybody talked about for a long time and said, why not? It always comes down to a few people to do this. The three carriers who did this — how did you do it? What convinced them? Or did they come to you and say, Katherine, help us solve this problem, we're willing to be the first ones to send the money tomorrow?

Katherine Dease (10:22) Say the specific question again?

Paul Tyler (10:24) It's interesting that it only took three carriers to do this, but inside those carriers there were probably three people who were incredibly instrumental. What was the catalyst? What were those early conversations like?

Katherine Dease (10:42) It's the premise of the entire Digital First for Annuities initiative — what we said we have to stop doing.

Going back to what we're trying to solve: we knew we would not be able to solve it if we had the entire industry waiting for everybody to be ready. So we said, what if we change the model, follow a typical adoption curve, and just focus on the innovators and the fast movers and what they need? As long as all sides of the market were ready to implement the standard, and they were willing to help bring the rest of the industry along, we had something worth trying.

They were willing to take the risk, because they were taking all the risk. It was Athene, Jackson, and Prudential — the first three. And they said, that's okay, because we will see the efficiency, the scalability, the cost reduction on a few of the pieces even with only these other two carriers. And when we bring more carriers on, we're going to see it multiply exponentially.

That's really how that conversation went, and that's the premise behind all of the standards. We do not have to wait for the entire market to be ready to implement something. What we need are the firms willing to take the risk, do it in a standard way, and help define the measures of success — what outcomes are we trying to achieve, and how do we need to achieve it. Then we create a standard. They implement it, and they bring the rest of the industry along.

Zinnia has been very instrumental in that, in seeding carrier data, beneficiary data, and some of these in-force transactions that are happening — particularly the withdrawals that just came out.

Paul Tyler (12:55) We've got a whole team incredibly focused on making this happen. And like you're saying, we're working with a couple of key distributors who have told carriers, listen, you've got to change. We can't deal with going to fifteen different company websites to make changes. You've got to standardize and give us an easy way to administer the business. To your point, it's going to make it easier to grow the business.

But okay — replacements are great. Congratulations, Katherine. That was yesterday. What are you going to do for me today? There are a lot of other problems on the list.

Katherine Dease (13:26) What are you going to do for me next? It's always that.

I'm really excited about our future over the next year to two years. And while I am on a Zinnia podcast, you all are helping to lead some of these in-force transaction conversations, along with your competitors. In-force transactions are a big focus. We have withdrawals that just came out. We're going to be starting a book of business API in a microservice format.

Let me explain what that means. It's small, tangible, usable, purpose-driven data points. Gone are the days where firms have to process huge, massive nightly feeds that are costly not only to receive but to manage, load, and troubleshoot. They also aren't truly standardized — I know they are not. In aggregate, there are so many places where the same data could be sent, and that created confusion. And so many of the fields on these massive data feeds were set as optional, because you can't require them. What did that do? It created blank spaces where carriers didn't send data.

That's a massive barrier to getting an annuity to show up in tools that only do two to five percent of annuities, because it's too big of a lift and too expensive. So having something like book of business, where they can build a view of what my book looks like, and then make specific requests for the data they need for whatever transaction they want to report — what is my income on this policy, what is my available income on this policy, what are my riders, what's my available withdrawal amount so I can process a withdrawal and get access to my consumer's money — all of that data is what we're focusing on right now.

There's a pretty hefty list of standards being built to eliminate the friction inside planning tools and order entry tools. Again, everyone has worked on solving them individually. What we're trying to do is solve it as an industry, so that while you'd speak the same language as your competitors, carriers have one very simple data message to implement. That could be for you, it could be for your competitors, but it could also be for the platforms where annuities are not showing up. That's what's on the radar.

Paul Tyler (16:21) Interesting. I'll throw out my pain point. One was dealing with transfer of assets — you create a great application process, and then a ton of replacements slows your business down to a crawl.

The other problem is: is Paul actually authorized to sell this annuity policy? Unlike life insurance, we have state regulations around mandatory training, state requirements, carrier requirements. Is Paul licensed, appointed, and trained in Connecticut? Is he also authorized for this carrier? And by the way, is he authorized to present this one particular product? Maybe it's changed — I took the training six months ago and I'm out of sync.

Where does that fit in the list of possible friction points to remove?

Katherine Dease (17:25) We worked on solving that one specifically — as a financial advisor, license, appointment, training, am I ready to sell. We call it can-sell. That was one of our first standards.

But what we realized early on is that to really feel the benefit of it, we also needed to implement a training API. So as Paul completed his training, that was pushed out to the industry in real time. Coupled with an order entry platform's look into whether I'm licensed, appointed, and trained, it provided real-time visibility.

I can't say it's completely solved, because you at least know that Paul hasn't completed his training, and you know it's accurate, because the data was pushed to you as soon as it happened or didn't happen. The next step, as soon as we have a champion, could be: okay, I need to complete the training, let me go get it. The framework is there to do that, because we know where the gaps are — that's part of the real-time call that comes back. It tells you what the gaps are. I think several carriers and solution providers are looking at how they help fill that.

But we've already eliminated a lot. The numbers we heard back from at least one carrier were a 40% reduction in NIGOs from implementing those two standards.

Paul Tyler (18:59) That's great. You're on a roll — you're ahead of me on my pet issues.

Another tough issue is errors, NIGOs. And I find NIGOs go hand in hand with suitability, because usually you've got an error, you fill in the wrong field, and maybe it triggers some sort of suitability review. What can be done? What's on the roadmap to standardize some of the rules that carriers are sharing with distributors?

Katherine Dease (19:44) To be very honest, I don't think IRI wants to play in that world at all. We want to create the standards for how the data is sent and received. The rules for how a carrier wants to handle suitability — you will never standardize that across the industry. I think I tried years ago. It just isn't going to be successful.

But what we can do is create a standard way to report those rules, to tell what those rules are. And then, heck, add AI on top of that. Logic-based systems can provide scoring, next steps, next best actions, all those things. So there's an opportunity to leverage the standards to build out whatever a firm envisions to be the superior way to handle that. IRI just doesn't want to try to standardize the specific rules.

Paul Tyler (20:45) Broadly, you've had success here in the annuity space. How has that rippled across some of the other industry associations? I was at a LIMRA Best Minds event where we had people from IRI, Wayne was there, as were a number of other associations. From my vantage point in the audience, it was great to hear all of the leaders of these organizations talking the same way about the direction the industry needs to head. How do you see the industry coming together on this issue?

Katherine Dease (21:23) I've been very pleased. Through Wayne's leadership and the other leaders across the trade associations, there is definitely an interest and an appetite, and the collaboration is actually happening. We get together in what we call FSTAS — the Financial Services Trade Association Summit — where we bring the leaders across the industry together. Wayne has hosted this for the last several years, and we talk about topics like this and how we collaborate.

NAFA and Chuck and I talk regularly about the work his group is doing. They're really good. They have a great group of IMOs that can provide a viewpoint into their problems and the things they need to solve. They have working groups and can pull that together. What they don't want to do is create standards that would conflict with an industry standard. So they bring those to us.

Two of those have happened. One is application status, which provides transparency to the financial professional — and I'll explain why that matters to the IMOs in particular in a second. The second is movement of an advisor or financial professional from one IMO to another. Their book of business didn't follow them, and that was very problematic. If I wanted to get my entire book, I couldn't do it if I was at one IMO and then moved to another, when I would call the carrier to get that.

We actually brought that second topic to the hackathon this year and had some of the IMOs participate and lead it. That came through Chuck's group and the working groups he had, and they brought us the topic when they were ready to create a standard. So there's definitely collaboration happening there.

Paul Tyler (23:35) Now you mentioned the hackathon. I really wish we'd participated. Talk to people about the hackathon — what the goals are, how you participate, and if you have problems, how you could bring them forward as a subject for next year.

Katherine Dease (23:56) Great question. The hackathon is something I love. It's so fun. I get giddy watching it, because what the industry is doing is bringing the smartest and brightest minds across the industry together to prototype what's possible.

Initially, when we started Digital First for Annuities, firms couldn't really envision what it would be if we got rid of all of the red tape and all of the barriers and just showed what was actually possible if we made some lightweight data calls to each carrier. We brought competitors together to really solution these out, and then we demoed it to executives across the industry.

What happened was absolutely remarkable. In forty-eight hours — the first one — we had five teams competing on topics, and they solved problems that historically would take a year or two just to get through working groups. They coded and presented the solutions, and four of them from that first year are already in production. That's remarkable.

We had such an amazing response from the first year that this year we had seven teams compete. One of the topics, as I noted, was agent movement, brought by both the broker-dealer community and the IMO community through NAFA. Another is already in production — income showing up in financial planning tools, with tools like SS&C, Black Diamond, and iCapital, for income planning. And on agent movement, we had four teams competing, and it's going to production by the end of the year. That's the plan; we're at least in those discussions. It takes a little time to work through prioritization, which is where we are with that one.

How do you participate? We ask for IRI members that have a problem they want to solve in the next six to eight months, and that have solution providers, distributors, and carriers — all sides of the market — at the table, ready to actually implement it. So we're asking for some form of commitment. If we prove this solution works, do you care enough about it that you're actually going to put your resources on it and implement it?

Those are the topics we even consider. From there we look at which ones are broad, industry-wide solutions and which will add the most value. Then we fill the teams based on who submitted — they get first selection. So if people want a seat at the hackathon table, submit a topic, bring your partners who are willing to help solve it, and be willing to do it alongside your competitors.

Paul Tyler (27:33) Hopefully we'll be there for the next one. Maybe talk about how you accelerate this stuff. You've done a great job, but when I look across the carrier landscape, everybody's competing for resources.

The good thing about what you've done is you've got carriers working on it. The downside is that carriers have a lot of priorities. Should I focus on Digital First, or should I focus on the next RILA or the next rider I'm putting in my FIA product? What stands in your way of moving even faster than you are today?

Katherine Dease (28:17) Great question. I'll start by saying I just completed an adoption survey within the last month, looking at things like barriers to adoption, pace — is the pace fast enough or not fast enough — and alignment.

There was zero disagreement on the alignment of the vision and strategy. Every single firm agreed with where we're going and how we're going to get there.

But when you get into where they are on their adoption journey, the answer is different by firm. Some firms have things they need to work on in their own house — getting their house in order and their data in order to truly support a digital-first environment. Some firms need to hear — and this is probably true for most — from distribution and their financial professionals that they want this.

You mentioned competing priorities. Everybody has competing priorities. That's true in every market everywhere. And again, there's no disagreement on where we're going. But when it comes to where they put their money and their investment, they need to know it's something their distribution is asking them to do consistently and as a priority.

What I mean by consistently is that when distribution executives meet one-on-one, when the RMs meet with their partners and the financial professionals they support, and they get asked what are the one or two things — or three or four things — we need to do, it needs to be consistent. They need to be saying, I need you to implement paperless replacements. I need you to implement application status. They may not use that name. What they'll say is, I need transparency on the status of my transaction. It can't go into a black hole. That's what application status provides. That needs to be on their priority list.

The other thing I'll say on how we accelerate: number one, distributors and financial professionals, start asking your firms to implement these things that are very important to you. Implement the outcomes.

Number two, we need solution providers — again, like Zinnia — to take the lead, be the thought leaders, implement, and help drive the industry toward this. There are other solution providers that play in a different space, more of an I'm going to work with you, carrier, on your mainframe to help you create a clean and consistent data fabric, translation layers, things like that. There are solution providers that can help federate. And there's obviously the DTCC, which is implementing the DTCC API Highway — an extension of what we're doing around the premise of build once, use many. That API Highway concept enables firms to implement with them, authenticate one time, and then leverage multiple APIs at the same time.

So there are plenty of ways to accelerate this. And let's not forget that as firms figure out where they're going, AI is a great enabler, a force multiplier of clean data. Once we get everybody speaking the same language, you can then very easily build agents to talk to agents. And again, there are many solutions that can help these carriers with their mainframes. There are a lot of ways to accelerate it. IRI is here to help in whatever capacity the industry feels we need to do as an industry, not one-off.

Paul Tyler (32:53) At Zinnia, we're all behind what you're doing. It's great to be working with a group of people bringing this much change to the industry. So thanks for what you're doing, and what IRI is doing. It's great to be part of this entire effort.

For people listening who want to learn more about the Digital First initiative, or who would like to reach out and talk to you directly, what's the best way to do it?

Katherine Dease (33:21) First of all, my virtual door is always open. But if you want to get some information about Digital First for Annuities, go to the IRI website, irionline.org. Underneath Operations and Technology, the very first thing is Digital First for Annuities. There you'll see write-ups, summaries — we track our adoption statistics. You can get access to our dashboard, our library of standards, and the actual standards.

It's important to point out that our standards, our actual DFA specifications, are free of charge. You do not have to be an IRI member. They are discoverable by anybody. That was very intentional, because in order to truly connect the ecosystem, in order to truly enable everybody to speak the same language, you can't have any barriers to adoption. That means you can't make membership a barrier to using a standard. So our standards — you can go out and look at them, download them, and use them.

If you want to come to the hackathon, have a seat at the table driving the standards, and be on the dashboard for tracking, then we do need membership, because that requires a lot of resources for us. But check out the website. That's a great place to go.

Paul Tyler (34:56) I agree. Katherine, thanks so much for your time, and thanks for what you're doing. We look forward to another really good six or nine months before the next IRI conference, where I think people will be surprised how far you've taken the industry.

Thanks, and thanks to our listeners. Join us again next week for another good episode of the L&A Hub Podcast. Thanks, Katherine.

Katherine Dease (35:26) Thank you.