The Department of Labor Changes are Coming, Are You Prepared?

Department of LaborIt’s no surprise when the regulatory environment shifts. Insurance companies are nearly always adjusting to new regulations and legal interpretations of existing regulations. 2016 looks to be a little different, however, with the Department of Labor’s (DoL) redefining the fiduciary definition to include insurance product sales people, agents and advisers. With the DoL unveiling a final version of the fiduciary rule changes this week, it is not yet defined how the fiduciary definition will be applied to life and annuity products.

Several trends are likely to result. It is difficult to know how the rule changes will affect the industry long term, but there are several actions insurers should accomplish immediately to prepare. The below actions should be underway or started as soon as possible:

  1. Create a User Story Inventory – The first step is to create a user story inventory of interactions between consumers and their sales person. Whether group retirement, individual, or voluntary products, documenting the user story will help insurers understand where the impacts of the DoL changes will be greatest. The goal of the inventory is to make visible the interaction points in preparation for the DoL changes to the fiduciary rules. Documenting the interactions and work streams will facilitate a rapid response when the DoL finalizes the changes. The user story inventory should be gathered by first interviewing key stakeholders from distribution, operations, service, sales, marketing, technology, relationship management, legal and compliance. Gathering all of these touch points in documented user stories will allow you to create a matrix that categorizes each story by several dimensions including:
    • Type of interaction, such as lead acquisition, proposal, selling, enrollment, service, question/response and others.
    • Distribution channel and selling style.
    • Mutual fund or Annuity (type of product(s)) involved in each story.
    • Documentation of the information commonly gathered (and not gathered) during the interaction and where it is captured and stored.
    • Categories of interactions such as ERISA/Non-ERISA, large case exemption/non-exemption, best interest contract exemption/non-exemption, etc.
    • An overlay of the systems that support each user story.
  1. Understand How Your Agents and Brokers Sell – Categorize your sales force into various categories based on the user stories that were developed in step one. By knowing how many sales people fall into each sales story type, you will be able to much more easily identify who will be impacted by the new rules. This will be easier for insurance companies that have captive distribution, but it should be completed by all companies regardless of distribution channel.
  1. Prepare for Product Innovation – Look at your product process to see how prepared your organization is to develop new innovative products. Our experience tells us that many companies are good at creating slight variations to existing products, but have difficulty being innovative with new products. Too often insurers don’t know who is making product decisions, they don’t know their system or operational capabilities, they don’t know how to effectively test products in the marketplace, and they struggle to create products targeted to specific niches. All of these problems are fixable and insurers should immediately begin creating product development processes that will serve them for the next several years.
  1. Seek out new Partners – New innovative distribution partners will be vitally important to identify those distributors that can fuel your growth. To identify these, insurers will need to capture data about distribution partners that indicate the types of partners you value. For example, if you want to find fee-based advisers, you may create a data profile that allows you to track these to identify the best.

While it might feel too late, completing these recommended steps within a couple of months will make you much better prepared to adjust to the rule changes. Putting this off until later, will force your sales, service, and systems departments into rapid tactical solutions rather than finding the advantages through strategic solutions.