Retail broker-dealers perform a key task for life insurance companies: They sell variable products and integrate third-party manufactured products critical to a competitive portfolio of offerings. Broker-dealers’ role differs substantially from that of the rest of a life insurance carrier and they have unique needs. For carrier CIOs, those needs fall primarily into the categories of ease of doing business and data management and compliance.
Carrier-owned broker-dealers rank ease of doing business among their highest priorities. This poses a challenge to carrier CIOs because keeping things simple by supporting a single solution across the organization and captive distribution network does not work well. Broker-dealers need capabilities that will integrate with or span a wide range of selling agreements that include a diversity of product manufacturers and types. Mandating the use of certain software can drive producers into the arms of competitors more willing to be flexible.
Another difference to life carriers’ core business lies in broker-dealers’ different needs surrounding data. Life carriers handle long-tail liability products at relatively low transaction volumes. Broker-dealers must handle high transaction volumes and shorter-tail liabilities. Pricing updates occur daily for a majority of broker-dealer products, necessitating near-real-time capabilities. Another challenge is broker-dealers’ need to integrate data from third parties and from all the companies they have selling agreements with. This is made difficult by the fact that many carriers do not format data according to industry standard models.
A final challenge stems from rising data privacy regulations. Broker-dealers have some unique challenges in this regard that carrier CIOs will also need to grapple with. Broker-dealers sit at a central point in a broader ecosystem. New regulations may require them to know how and where organizations store and use the information they touch—but the broker-dealers have little direct control over those data. Moreover, this complex regulatory environment requires broker-dealers to ensure they have the requisite legal talent on staff. One way for broker-dealers to respond to rising compliance burdens may be to seek greater economies of scale through consolidation.
Employees and consumers alike expect ever-faster response times from all organizations. This is changing the way companies do business. Although both life insurance carriers and the broker-dealers they own both face those pressures, the world may feel like it is changing faster for broker-dealers. Carrier CIOs will need to find creative ways to ensure the ease of doing business, quick access to a variety of data, and compliance with tightening data regulations going forward. For more information, see the full report: Insurer-Owned Broker-Dealers: Challenges and Opportunities.
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