Life insurance carriers are taking a step away from their notoriously paper-heavy processes, as many are moving to adopt electronic insurance applications (known as "e-apps" or smart applications).
Although the initiative is seen broadly as a positive move for the insurance industry, managing general agencies (MGAs) are raising concerns that the new technology effectively cuts them out of the sales process in some cases.
In the past year, several insurance companies have launched new electronic insurance applications, and many others are in the process of developing their own versions. This is because e-apps allow financial advisors to fill out and submit policy applications on a computer or tablet instead of completing lengthy paper applications by hand.
"I'm excited that insurance companies are getting on board," says Michael Williams, president of BridgeForce Financial Group Inc., an MGA based in Mississauga, Ont., and president of the Canadian Association of Independent Life Brokerage Agencies, adding that e-apps could make the entire sales process more efficient and improve productivity for insurers, MGAs and advisors.
"We need to find ways to be more efficient and more effective in how we run our business," he says.
However, the quest to improve efficiency has created some unintended consequences in the independent distribution channel. Specifically, as advisors submit e-apps directly to the carrier rather than via their MGA, as is the case with paper applications, MGAs essentially have been excluded from the application process. And, in some cases, MGAs are not receiving any notification that an advisor has submitted an e-app until after the insurer has issued the policy.
This represents a major issue for MGAs because they are responsible for monitoring their advisors' sales for compliance with suitability guidelines and other rules, Williams says: "We need that information to do our own compliance checks."
When MGAs do not receive a copy of the application - or even notification that an application has been submitted - they have no opportunity to meet those compliance obligations.
"[MGAs are] responsible for the business, but they don't know about the business," says Tana Sabatino, implementation services specialist with the Canadian Life Insurance EDI Standards Association (CLIEDIS) in Thornhill, Ont. "If something was done that was inappropriate, they'd be on the hook for it."
To resolve that issue, MGAs are urging insurers to revise their e-app processes to ensure that when an application is submitted, the relevant MGA receives a copy.
"We're asking all of the insurance companies that have these smart applications - or as they develop smart applications - to make sure that there's feedback to the MGA's back-office system to close the loop," Williams says. "Otherwise, how do we monitor the activities of advisors?"
Some insurers have indicated that they are already in the process of establishing these e-app feeds. And CLIEDIS, for its part, is trying to help by developing industry standards around communication and other best practices that insurance carriers should have in place as they begin utilizing e-apps.
"We're looking at the business-process issues and defining best practices for keeping the distributor in the loop because that's not documented anywhere," Sabatino says. "There are some business-processing issues as well as technical issues that companies need to take into account when they're introducing [e-apps] so that the process can flow."
The prospect of MGAs being left out of the sales process is particularly concerning, as MGAs compete with insurers' increasingly prominent direct sales channels, says Simon Tomlinson, CEO of Toronto-based BlueSun Inc., the firm behind the WealthServ software widely used in the industry.
"As the carriers create these direct electronic methods of submitting business, the implication is they're actually opening up access for other channels - web channels and other marketing channels outside of independent distribution," he says. "It strikes a nerve of fear in the channel that we would all love to protect, which is independent distribution."
That growing competition makes it even more critical for the independent advisor channel to embrace e-apps and other technology that resonates with consumers, Tomlinson adds: "It clearly represents the future of the way the industry should operate. If our channel doesn't get on board with this, then it opens the opportunity for new channels and competition to come in."
Once insurers resolve the issues related to MGA notification, e-apps will be beneficial for the industry, says John Dargie, president and chairman of Mississauga, Ont.-based Independent Financial Brokers of Canada. In fact, any effort to make the application process more efficient is welcome, he adds, given that the existing paper-based process is frustrating and inefficient for both advisors and MGAs alike and often creates hefty delays in getting policies issued.
"If the electronic process does what it's supposed to do and speeds up the underwriting decision," Dargie says, "the broker will applaud that."
That's precisely the reason why insurers are developing e-apps, says Mike Stocks, vice president, insurance marketing, at Kingston, Ont.-based Empire Life Insurance Co., which launched its e-app, entitled Fast & Full, in December 2013.
"The top two pain points that were overwhelmingly consistent across the vast majority of advisors were that there's too much paper in today's life insurance application process, and that it takes way too long to process an application," Stocks says. "[E-apps] save time for advisors, and they're very convenient."
In particular, e-apps can reduce the administrative burden for advisors, MGAs and insurers by eliminating the need for manual data entry and driving down the volume of incomplete applications that MGAs receive. In fact, as many as 97% of the applications MGAs receive are deemed to be "not in good order" because of errors or missing information, which forces the MGA to ask the advisor to collect additional information from the client.
In contrast, e-apps can only be submitted once all of the necessary information has been input into the application. "[E-apps] can certainly speed up processing and reduce the number of errors that happen in the paper world," Sabatino says.
Application processing time has improved with Empire Life's e-app, Stocks says, noting that it takes an average of 18 days for an application to be settled using Fast & Full, with 39% of applications settled within 10 days or less. That compares with an industry-wide average of 30 days for a traditional insurance application to be processed.
However, not all advisors are embracing e-apps. Change can be daunting for advisors, especially when they've been doing business a certain way for many years, Tomlinson says. For some advisors, the prospect of using a computer during client meetings may seem formal and impersonal, he adds.
"There is still some genuine cause for concern about how [an e-app] is going to operate at the point of sale," Tomlinson says.
In addition, some advisors may be intimidated by the prospect of having to familiarize themselves with a slew of new technological platforms. Even though each insurer is collecting the same type of information, applications - whether on paper or electronic - can vary drastically among carriers.
"If every carrier is writing their own e-app system and I'm an independent broker, I'm faced with having to learn maybe 12 ways of submitting business with different systems," Tomlinson says. "It's a frustration for the brokers."
Reliability also is a concern. As is often the case with new technology, some insurers have encountered technical problems with their new e-apps. For example, Toronto-based Canada Life Assurance Co. issued an apology to advisors in August a few weeks after launching its new e-app process, called New Business Now. Canada Life is working on fixing its application backlog, connectivity issues and various other bugs that have emerged.
Many advisors are likely to become more comfortable with the technology once it has an established track record, says Ray Adamson, chief customer officer with BlueSun: "For advisors, it's a trust issue - trusting that the process is going to work and trusting that it's not going to be cumbersome or onerous."
After having invested heavily in the new technology, insurance companies are eager to get advisors using e-apps - and some insurers are providing incentives to get advisors on board. Empire Life, for example, held a contest over the summer to encourage advisors to try out Fast & Full.
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