Annuity Carriers Cautious About Digital Signatures

By Linda Koco
InsuranceNewsNet

In the annuity sector, many advisors and carriers are dipping a toe in the water of digital signatures rather than diving in head first.

This may come as a bit of a shock to those who work at some of the nation’s largest carriers. After all, some big annuity companies and distributors are already completely paperless with the exception of required state-based paper forms, according to a new report from Aite Group.

That includes use of a non-intrusive digital signature process.

But outside of the top tier carriers, most of the annuity industry has not yet implemented a digital signature approach that fits into the existing sales process while also providing adequate legal protection to the carrier receiving funds for the new annuity, the researchers said.

As a result, wet signatures are still commonplace in many new business annuity transactions, and it’s hobbling the move to industrywide paperless transactions.

Also called e-signatures, digital signatures are electronic counterparts to handwritten (wet) signatures. People attach digital signatures to electronic documents—such as insurance contracts—to signify the document is theirs and/or that they agree to the document’s terms. Most jurisdictions worldwide accept these signatures as legal and binding.

Advisor perspective

Although digital signatures are not new, annuity advisors have been slow to use them, Thomas Borchert told InsuranceNewsNet. Borchert is a life, annuity and health agent in Sioux City, Iowa.

Borchert speculated that the vast majority of advisors who have been in the life and annuity business for 10 or more years do not use digital signatures. And most advisors over age 40 are not computer literate, he said, so for them, the idea of moving from wet signatures to digital is unappealing. 

In his own case, he said he has a penchant for technology. So, at the moment, he is in the process of going totally paperless. Part of this transition entails shredding files he does not need, scanning those he does need, and otherwise organizing his operation so that it will become completely paperless.

Is he using digital signatures? Not yet, but he’s planning on it, said Borchert, who is principal of Professional Insurance & Financial Alternatives. He thinks it will make his practice more efficient.

But there’s still a hitch. When evaluating new products that distributors are offering, Borchert said he now routinely asks, “Can I do it digitally?’”

He said he asks because some products are not fully digital. This often is the situation at companies that are “bogged down by legal issues surrounding adopting of new technologies,” he said. If the answer is “no,” he thinks twice about the product.

Even if the answer is “yes,” he said, he probes further about the nature of the technology. “The insurance companies are not using a consistent approach when it comes to digital signatures,” he explained, and some of the processes he’s learned about are cumbersome.

He said he thinks the technology should be “simple enough for a five-year-old to do.”

Digital problems

The researchers at Aite Group pointed to many advantages to be gained from digital signatures. These include providing “a robust, verifiable signature and a detailed audit log of the entire workflow as well as signature location capture and time stamps.”

But annuity companies have been taking some approaches to explore solutions to their current problems, such as introducing steps that change the sales workflow, Aite researchers wrote.

One such problem has to do with the process used to authenticate identity. According to the researchers, in wet systems, it’s commonplace for distributors and carriers to require the advisor to authenticate identity of the customer by checking the person’s driver’s license. But in many digital approaches, the systems “often require an additional counterintuitive authentication step,” they wrote. “This often results in the client defaulting to the wet signature approach or questioning the sale itself.”

They wrote that some digital signature systems require the customer to:

• Sign remotely by logging into their email and using their own password, even if they’ve already completed the order entry at the advisor’s office; and
• Enter the signing portal only after completing a “full-knowledge match” by supplying “arcane information” such as address lived in 15 years ago or current balance of a car loan. “Particularly for clients who are more than 60 years old, which is common for annuity buyers, these questions can be frustrating and disruptive to the sales process,” the researchers said.

Hence, the wet approach continues. But wet signatures pose problems, too, the researchers indicated.

For instance, in a wet system, they said, carriers have no additional authentication beyond the advisor checking the driver’s license, thus opening up potential for fraud and identity theft. And the advisor and client must deal with the inconvenience and additional workflow that a smooth-functioning digital system would bypass.

The report urged carriers to “evaluate, test and potentially adopt” a more streamlined digital approach, based on best practices for digital signature use. One example cited is a system using “multifactor” authentication that does not disrupt the sales process.

“I will use digital”

For Borchert, the agent, an effective digital signature system is what he wants.  “To the extent I cannot use paper, I won’t use it. And to the extent I can use e-signatures, I will do it,” he said.

He envisions a time when advisors will talk with their client over Skype or another e-video system, send encrypted documents back and forth over the Internet, and sign documents digitally as a matter of everyday business. “Then we’ll be selling over the Internet all of the time,” he said.

However, Borchert cautioned, this won’t happen until the companies spend the money to build systems that work efficiently as well as effectively.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].