For the past 2 years, NAVA, Inc., the Reston, Va. trade association for the retirement income industry, has spearheaded development of an industrywide program for straight through processing for fixed and variable annuities.
Significant progress has been made, and the standards are now being fleshed out in implementation guides. It is likely that several large annuity purveyors will be online with STP by year-end or early next year. Spillover to most of the rest of the financial services products will follow very rapidly thereafter.
What is straight through processing? It is a set of standards that permit inter-operability among insurers, distributors and vendors. It is intended to permit electronic, paperless transaction of new business from point of sale through issuance of the annuity, hopefully via printout at the consumer’s residence.
Many brokerage firms and similar organizations already use elements of STP in their business. But NAVA’s STP initiative is more comprehensive than any existing e-processing system. Moreover, it incorporates industry-accepted standards regarding suitability compliance, replacement screening, recordkeeping, e-delivery and e-signature that are more sophisticated and comprehensive than anything currently in use.
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Why did NAVA develop its STP initiative? The current error rate on annuity applications, industrywide, is probably as high as 30%. At the same time, suitability screening, agent supervision, replacement requirements and the annuity products themselves are becoming more significant, more complex and more fraught with liability in the event something goes wrong or gets missed. Likewise, STP of financial services products is more expeditious, faster to market and more environmentally friendly than is the use of paper.
E-delivery of prospectuses alone will result in massive savings to issuers of registered financial products and save many forests from the destruction resulting from the making of paper.
Finally, regulators are becoming less and less forgiving of lapses in supervision of the sales process and of poor paper trails.
STP has potential to solve all these problems. In addition, it will enable inter-operability throughout the industry.
Throughout this project, NAVA has been fortunate to have received contributions from insurers, distributors, money managers, third-party vendors and regulators. All have worked hard and added much toward the success of the standards.