DoL Assessment Part 3, Addressing Added Distribution Complexity

As we talked to the attendees at LIMRA’s Retirement Industry Conference last week, a common theme appeared. Many were in a “wait and see” mode. They were reluctant to take any action on the DoL ruling until it became entirely clear what their organization was expected to do. Some were waiting for their legal departments to make decisions while others were waiting to see how their broker-dealer partners addressed the changes. Either way, they were waiting. Last year I had the pleasure of going on a canoe trip in the northern reaches of Minnesota with my sister, an avid canoer. I was frequently confused at how to find portages and campsites since it is difficult to match the map to the landscape. Whenever I was confused she would respond like a wise sage, “keep paddling and the path will become clear.” In Minnesota, and in the insurance industry, you must keep paddling even when the way is unknown. The reality is there is no time to wait for clarity.

Use this week’s “Need to Know” area to assess your organization’s understanding of internal distribution complexities that will impact DoL design and implementation, and help you to identify internal resources that will alleviate them.

“Need to Know” #3 – How prepared are you to determine all sources of complexity and address any additional complexity with existing systems?

Insurers must prepare now for distribution complexities they will face during implementation. To start, ensure that:

  • IT begins to address additional commission complexity.
  • Operations start to address complex workflows that will likely change based on the product, qualification, and distribution partner.
  • Product development teams look at their ability to increase the number of simultaneous product redesigns and pricing change.

Use the following questions to assess your awareness of any additional complexities in your organization.

1. Do you know what will drive new complexities?
The key driver of additional complexity for commission processing will come as each distribution partner makes decisions about compensation. Some will pursue fee-based approaches while others will demand that all their manufactures provide a flat, up-front compensation. Still others may want new commission styles. From the insurers’ perspective, they will be required to provide products with different commission amounts and payment schemes demanded by each distribution partner.

Operations must prepare for this type of additional complexity. Insurers will need to support individual processing requirements, and process flows from each distribution partner, depending on how they intend to address DoL requirements. Each process flow must be designed to ensure that the correct compliance oversight is in place, and critical documents are stored, included in the contract, and signed.

Many companies struggle to get products to market fast enough. The rise of new product variations, different pricing (a product of various compensation levels), and new competitive pressures will demand more efficient product development processes. Companies must plan now to ensure products are getting to market much more quickly, reduce the rework that exists in product development, and work on multiple products simultaneously.

2. Do you have internal resources to alleviate any complexities?
It will be a difficult task to determine all additional complications coming out of the DoL requirement. However, it is important to accomplish now so that insurers can move on to identifying the resources they have that can support these complexities. Whether this will be a new system, process or operational procedures, it needs to be determined now. Early identification will allow for a rapid redesign, early implementation and ultimately a competitive positioning amongst all insurers.

It is not too late to begin taking the necessary steps to address the new fiduciary rules. At NEOS, we assist insurers in documenting organizational processes, complexities and impacts, and available resources because we know that an understanding of this information will streamline future decision making and implementation. If you are behind on this internal documentation, use Need to Know #1 and Need to Know #2 to get started.

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