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Leaders of the PAC

The ability for IFAs and life offices to transact new business electronically has been something that has been promised for more years than I care to remember. At long last, that promise has turned into a reality.

As I have reported here previously over the last 15 months, a number of life offices and IFA firms have been co-operating to an unprecedented degree to deliver this important innovation. This follows approaches made in the middle of last year by a number of national IFA firms which I helped co-ordinate.

Origo Services was appointed to assist in the management of the initiative and, as a direct result, four service providers are at various stages of rolling out their new business services.

AssureSoft currently has around 200 IFAs and three insurers – Legal & General, Norwich Union and Royal & Sun Alliance – using its service. The Exchange has deployed its new business software to all its 14,500 users and has gone live with Legal & General and Norwich Union. Misys has gone live with Axa and Synaptic is also expected to release its service imminently.

As part of the electronic new business process, a replacement for the conventional paper-based application has been created. This is known as the product application component or PAC. All new business services adhering to the industry standards will use the PAC concept. However, to minimise the amount of space that PACs will take up on advisers&#39 computers, it has been agreed that PACs will not carry any on-screen branding from insurers.

PACs will be automatically populated with information brought forward from quotations and key features documents and, for those firms which use some of the more advanced back-office systems, data can be pre-populated from these as well. This will not only assist in reducing the time taken to enter details into PACs but significantly reduce the scope for errors as PACs will carry validation routines to ensure inappropriate answers cannot be given.

In a later release of these services, it will also be possible for PACs to be cross-populated so that, if proposals are being made simultaneously to more than one life office, the data entered into one PAC can be populated automatically to another. This will be particularly useful in areas such as lump-sum investment where the overall investment is likely to be spread across multiple providers.

One of the key requirements of this project was that IFAs should be able to use the services in both an online and offline environment and even when a PC is not available for use in front of the client.

While, in theory, recent legislation on digital signatures makes it possible for these to replace conventional paper-based signatures, there are still many acts of Parliament which have to be amended to take account of digital signatures before the new legislation can be of real benefit.

The solution to this issue comes in the form of the Origo declaration approach. This is a process that has been identified over the last few years with extensive guidance from lawyers. This allows the consumer to sign a single-page standard declaration that replaces the need for any other signatures by the proposer during the process.

The declaration is a standard form used by all providers – one declaration for lump-sum investments, one for protection and one for pension contracts. The potential savings this will create in paper alone are massive.

Where a computer is available, the adviser enters details straight into the PAC on screen. If the adviser does not have immediate use of a computer, they can write the details on a data-capture form, ask the consumer to sign the appropriate standard declaration and then have the details entered into a computer when they return to the office. The completed PAC is sent electronically to the insurer, with the declaration and any other documentation following by mail.

The PAC and the declaration both use a declaration reference number so they can be tied up when they reach the insurer. Once the application has been processed electronically, the insurer sends a copy of the information received, known as the confirmation schedule, to the customer. If for any reason the information is incorrect, the client can advise the life office accordingly.

A number of insurers are already considering scrapping the declaration and operating without a signature to improve the process further. Undoubtedly, as consumers become more accustomed to using digital signatures,
the whole process will become easier. However, the current services still offer major opportunities for cost saving.

Last week, I spoke to one IFA firm which has already sent a number of new applications to Legal & General using the exchange service and has several more in preparation. Alison Barton of H&D Financial Services says: “The service was simple and easy to use, probably easier than handwriting the application. It is certainly better for the client as they receive a full printed copy from the insurer of all that has been submitted.”

Barton was particularly impressed that you can transfer information from the quote you have obtained and that the cases commenced from the day they were sent in online.

Significantly, however, the biggest bond provider, Prudential, has actively stated that it has not as yet been able to agree acceptable terms with any portal provider. This might indicate resistance on its part were it not for the fact that Prudential is known to have been highly successful in attracting new bond business electronically over its own extranet.

Without in any way wishing to undermine the efforts that have been made to deliver these important services, I am concerned that a few insurers are making life unnecessarily difficult for IFAs using the system by making the entry of agency numbers and other information — previously carried out by the provider – mandatory for the adviser. This may limit the benefits they receive from their investment in launching these services.

It would be easy to fail to recognise the significance of these new services. However, in SG Securities&#39 equity research document on the UK life insurance industry – Entering the New Economy – it suggests that life offices can reduce their new business acq-uisition expenses by as much as 45 per cent through the use of e-commerce. This report should be essential reading for every life office as it identifies in detail quite how much they can save through electronic trading.

Moving to adopt these new services will inevitably require significant investment in time and training facilities by IFAs (the software is generally free) but this will create major savings for insurers. SG Securities states: “Life companies have by far the largest expense base in the industry value chain and have the most to gain.”

It is, therefore, very disappointing to find virtually no evidence of life offices looking to incentivise IFAs for the use of these services. Interestingly, Friends Provident has said it will provide some IFA incentive but only for applications submitted over its extranet service rather than via IFA portals. Personally, I believe this is very short-sighted as the main priority must be to maximise all electronic distribution as soon as possible.

Of course, the major part of any saving should be passed to the end consumer but, bluntly, it is unrealistic to expect IFA firms to make such significant investments without some fiscal recognition.

Having said this, life offices cannot really achieve these significant savings until such time as they discontinue old and inefficient practices such as the distribution of illustrations and other documents from branches, in addition to key features documents and comparative quotations that are obtained over the various portals.

IFAs who wish to receive uplifts in income for electronic trading must be prepared to give up all such wasteful documentation and truly commit to electronic trading. Although the new systems and services have been designed to fit IFAs&#39 business processes, it has to be recognised that, for example, few IFAs have good typing skills as they have years of experience in filling in paper-based forms.

To me, it appears there is a clear need for a short-term compromise. Insurers need to find a way to encourage IFAs to try the new services regularly to familiarise themselves with the processes.

Although the initial focus of the project has been on life insurance bonds, a considerable amount of work has been being done by national IFAs, particularly Towry Law, various insurers and Origo, to identify a common set of underwriting questions that can be used to move these facilities into other product areas.

Having been actively involved in this work myself, I am confident that those insurers which have participated will reap major benefits next year, whereas the small number which have chosen to ignore this work and not attend these sessions will find themselves at a significant disadvantage.

In its report, SG Securities says: “We believe that this move to electronic trading is nothing short of an industry big bang and will happen within the next two years.”

I know many people in life offices who feel they can take an aloof approach to all this on the basis that IFAs need to adopt these innovations to remain competitive in a 1 per cent world. Any life office tempted to take this view should remember it is putting its own new business flow at risk.

I believe it is important, however, to identify to the consumer that any payments made to support the costs being borne by IFAs are additional payments for carrying out work which reduces product provider costs. This would, of course, need a change in the current disclosure regime but, with the FSA having done so little to encourage the use of e-commerce, perhaps this would be a good place to start.

In the meantime, there is no reason for life offices to delay the introduction of electronic products, with preferential terms for both advisers and consumers, in order to accelerate the adoption of these tools from which they have so much to gain.

The table (above) shows those product providers which are planning to launch online bond products this year. Other providers will be launching services in 2001.

An extended version of this research, including details of launch plans for other products, can be found at



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