CSC Meeting Tackles Distribution Channel Expansion

To effectively automate insurance processing, DTCC and the industry have acknowledged the importance of expanding automation across distribution channels. Automating Independent Broker/Dealers (IBDs) and banks that handle a growing segment of insurance product sales (nearly 48% of variable annuity sales) has taken on an increasing urgency in a competitive financial marketplace.

The DTCC strategic long-term plan with the industry to build an electronic environment for insurance products has designated channel expansion as one of the two key avenues of action. As an early step in this initiative, DTCC used a special meeting of its Carrier Steering Committee (CSC) to take up the challenge and collect input from key stakeholders. Four solution providers and two clearing firms joined the carrier representatives in a strategic planning session, providing a more comprehensive view of the obstacles and the opportunities in channel expansion.

Solution providers and clearing firms are major contributors to the product development that will further automate the distribution side and they should be part of the discussion, according to Lana Macumber, director, Strategy and Business Development and chair of the meeting.

“Solution providers supply the access tools through their front-end applications. Clearing firms hold a key to IBD participation, since they already supply technology and services to many IBD customers.”

Solution providers DST, Allbridge, Blue Frog and Ebix all had an opportunity to discuss current and planned service applications with the Carrier representatives. Clearing firms Pershing and NFS added their perspective on what was needed to help convince their clients, the independent broker/dealers, to participate in the automation process.

Challenges to Expansion

Challenges to channel expansion revolve around access and cost. To provide greater access to automation, carriers look to DTCC to develop membership alternatives to attract more IBDs, including multiple funding options outside of the DTCC settlement process. In addition to direct membership access, Insurance & Retirement Services is examining ways to support the clearing firms in their efforts to reach and automate more IBDs. By utilizing a clearing firm that is already a member of a DTCC subsidiary and a user of Insurance & Retirement Services, IBDs can gain access to Insurance & Retirement Services, such as LNA.

The cost of technology is a significant obstacle to small and medium-sized IBDs with limited resources. Leveraging the technology supplied by clearing firms is one way IBDs can get past the cost limitation and realize some of the benefits of automation.

Problems also arise for carriers when vendors and DTCC are providing the same or similar services that compete and add cost. Such ‘layered costs” are complicated by the vendor’s need to generate profits against the at-cost model of DTCC.

Carriers and clearing firms stressed that DTCC partnering with key order entry vendors in the IBD market would help drive channel expansion. This collaboration with vendors requires negotiation and planning on the strategic level.