Insurers Collaborate to Digitize Retirement Income Annuities

Guaranteed income annuity retail sales have been hitting new records almost quarterly of late, in part due to high interest rates providing strong locked-in returns. In the latest industry report from LIMRA, retail annuity sales hit a record $215.2 billion in the first half of 2024, a 19% increase from the prior year’s results in the survey representing 92% of the U.S. annuity market.

But as the saying goes, annuities are often sold, not bought. With interest rates set to start coming down, it may be just the right time for the annuity industry to capitalize on its strong run by simplifying the process of selling and exchanging these often-complex investments.

For Insured Retirement Institute members, the face of just such a movement is Katherine Dease, its recently hired chief technology and innovation officer. In the role for slightly more than one year, Dease has been spearheading an effort to bring together the full annuity supply chain, from carriers to assets managers to distribution providers.

“Annuity products are not all speaking the same language, which prevents innovation that allows carriers to get their products in more places.” Dease says. “The industry needs to speak the same language if we are going to support innovation that creates solutions for consumers that satisfy their retirement needs.”

Oftentimes, the processes to sell an annuity or exchange one can be cumbersome when compared with the host of other financial transactions advisers make with clients. That is one reason why Athene, which led individual annuity sales in the U.S. at the end of 2023, has been an active partner with the IRI and even many of its competitors in finding solutions, says Chief Operating Officer Mike Downing.

“The [annuity] buying process is complicated,” says Downing. “It’s a contract, not an investment vehicle, and there are certain types of disclosures and processes that go along with that.”

Downing says Athene has been working with other insurers in the IRI network to address those pain points. One pain point is the buying process itself, but another comes when customers want to exchange their annuity—often with a different carrier. That type of business makes up about 70% of the annuity market, according to Downing, but is also the most complex.

“Right now, that process is too long,” he says. “It can take two to four weeks before the old annuity is surrendered and the new one is in place.”

Paperless

The IRI, an advocacy group whose members account for 90% of annuity assets in the U.S., has developed a program called Digital First for Annuities to turn ongoing institute conversations about creating a better market for annuities into action.

“These conversations are not really new,” Dease says. “What’s new is that we have said that we now know we have to act as a united industry. We can complain about these problems all day, but unless we solve them as an industry … we are not going to be successful.”

From her seat at IRI, Dease has been able to align the full annuity supply chain to try and create a “build once, use many” model. She says that annuity providers had been building one off integrations on their own, but not industry wide, reusable standards that work collectively and can benefit financial advisers selling the products.

Dease says, as of now, annuities are a “swivel chair” solution. Meaning that, even when advisers are registered to sell them, the annuities do not sit on their financial planning and wealth management platforms—they must swivel to an entirely different system.

“We need annuities to be part of the pie holistically,” she says. “That will allow for better holistic plans for consumers because you can see how that investment stream will support the portfolio or how the protection of that annuity will work alongside traditional investments. That is what we are trying to solve for; get annuities embedded into the tools that financial professionals use.”

Some of the first work IRI is tackling is a carrier-to-carrier program called Paperless Replacements run by the Depository Trust & Clearing Corporation. The service creates a paperless transfer of asset request between insurance carriers that can decrease order processing from multiple weeks to less than 72 hours.

First Movers

Dease is quick to acknowledge the long road ahead to reach that state. In the near term, she says the IRI and some of the top solutions and distribution providers will be able to show progress toward digitization and a faster time to market. That, she anticipates, will draw a noticeable jump in adviser satisfaction ratings for the products.

Some of those big names from the carrier space, including Athene, are Allianz, Global Atlantic, Jackson, Lincoln Financial, Nationwide and Prudential. Meanwhile, distributors engaging in the project include firms such as Edward Jones, Fidelity Investments, J.P. Morgan & Chase, LPL Financial and UBS. Finally, the project will also be working across investment platform providers including Black Diamond Wealth Platform, Orion and Envestnet’s Tamarac, and financial planning tools including eMoney, MoneyGuide and RightCapital.

“Firms have different priorities,” she notes, so the projects are going to start with first movers doing it as “proof of concept.”

Downing and Athene will be an active part of that group, in part to prevent advisers turning away from the solution. Downing says the current sales and exchange process for annuities can be frustrating for a financial adviser because they have no control over the process, at times not even its completion timeline. That can, in turn, make some advisers seek other options that, while maybe not the best fit for a client, may simply be easier to implement.

“The financial advisers that are considering annuities for their clients must have expertise on both the product and associated administrative process required to issue the new contract,” Downing says. “These advisers have other choices—they can put someone in a CD or a money market account. But if an annuity is the best solution to give a customer a sense of ease and have them feel good about retirement, then it’s on us to make that process easier for everyone.”