Third SAB Meeting Endorses Development Agenda, Strategic Plan
"Because of our ability to leverage DTCC’s enormous processing capability, we can achieve economies of scale and reduce fees as volume increases. Our customers reap the financial benefits of our growth. As a customer-centric organization, DTCC is dedicated to raising the bar on customer service even as we lower the cost of providing that service." -Michael Bodson, DTCC executive managing director, Business Management and Strategy
The collaborative working relationship between DTCC and the insurance industry has produced a strategic plan and development agenda for driving and expanding standardized automation for insurance processing. The plan delineates two areas of focus for DTCC – implementing and advocating for the NAVA STP initiative for annuities and expanding automation across distribution channels to reach independent and bank broker/dealers.
Reflecting an urgency to build a scalable growth model for selling and servicing insurance products, senior representatives of major carriers, broker/dealers and clearing firms endorsed the primary elements of a three- to five-year strategic plan and the specifics of the DTCC 2008-2009 Product Development Agenda at the most recent meeting of the Insurance & Retirement Services Senior Advisory Board.
Action by the SAB
One industry representative described the third meeting of the SAB as “a tipping point” in the collaborative effort of transforming a paper-intensive process into an electronic environment. The June 2008 meeting produced a consensus for strengthening the DTCC role in developing automated solutions and connecting the industry, accelerating the pace of automation and driving usage of standardized, automated solutions throughout the marketing chain for insurance products.
The industry representatives and DTCC staff engaged in a productive discussion of obstacles to business growth across the industry, confirming short-term solutions already in the development pipeline and longer term strategies to meet these challenges through greater automation, standardization and centralization of information sharing and money settlement services.
Leonard Schmitt, director, Relationship Management, opened the first session by stressing the core governance function of the SAB and its Carrier Steering and Broker/Dealer Committees and the critical value of customer input and guidance. “We encourage you, our customers, to speak frankly about your problems and ideas, because it is your input that drives the process. We listen and act on what you tell us.”
Cost was a recurring concern throughout the meetings, particularly the layered costs that come with vendors and DTCC developing and providing services. Weighing the cost of technology against the potential cost-saving benefits of automation is an ongoing challenge.
Representatives of DTCC senior management spoke about its role and history of delivering services and lowering costs for other financial sectors.
Michael Bodson, DTCC executive managing director, Business Management and Strategy, pointed to the benefits of DTCC’s at-cost business model.
“Because of our ability to leverage DTCC’s enormous processing capability, we can achieve economies of scale and reduce fees as volume increases. Our customers reap the financial benefits of our growth. As a customer-centric organization, DTCC is dedicated to raising the bar on customer service even as we lower the cost of providing that service.”
Jim Leonard, DTCC managing director, Strategy Office, affirmed that the driver of change is direction from the industry. With effective customer input, DTCC can provide planning and development of products and services that bring substantial value to the industry. “We have a unique at-cost, user-owned, user-governed business model and unrivalled economies of scale, security and business continuity, and we are committed to expanding our customer reach and bringing the many benefits of automation to more distribution channels.”
Other Highlights of the Meeting
In addition to cost concerns, other areas topping the discussion list were Web services, pilot projects, industry standards and new services.
Building Web Services: Web services are a necessary component of distribution channel expansion and of implementing STP.
Vivek Pabby, DTCC managing director, Application Development, acknowledged the challenges of building Web services in an organization known for its fixed format, mainframe expertise. “DTCC represents the gold standard for mainframe services and we are committed to achieving the same level for Web services.” He stressed the issues of connectivity and security along with the complexity of establishing firm standards in a web environment that requires so much customization.
Pabby and other Insurance Services staff referred to the “lessons learned” from the pilot of the first Web service product, Fund Transfers. The problems resolved during the extended pilot will be enormously valuable in piloting and implementing Attachments.
The Role of Pilot Firms: Pilot projects are critical to the development and implementation of new services. Those firms on ‘the bleeding edge” of technology development that participate in pilots like Fund Transfers need support for their commitment, particularly in light of the struggle for resource allocation within the companies. DTCC staff outlined an ongoing examination of possible incentives to reward the pilot firms for their contribution to the success of the product.
Industry Standards: Participants examined the status of DTCC’s work with industry representatives on FAR (Financial Activity Reporting) data standards and the complexity of standardizing with vendors the Product Profile for Annuities (PPfA), an open industry XML standard that allows carriers to electronically articulate product definition information, including service features, riders, state availability data and other information. The challenges of creating PPfA standards that could effectively serve a central warehouse of information revolve around product innovation and governance issues.
New Services in Development: Considerable enthusiasm was expressed for Attachments, the next service in the development agenda, which will be launched before the end of this year. Both carriers and distributors felt that this capability to electronically attach and transmit imaged documentation or electronic forms would be useful in any of the services that require supporting documentation. Carriers reaffirmed their need for the Replacements service which follows in the Development Agenda in 2009. Replacements is another web service developed by DTCC using XML data messaging that will automate and standardize 1035 exchanges from one carrier to another for annuity and life insurance products.
Wrapping up the Meeting
Since the formation of the SAB in May 2007, Insurance & Retirement Services has promoted an open forum, where DTCC and our insurance customers can provide guidance for strategic planning, development and implementation of automation services that deliver processing and data-sharing solutions across client segments, enabling the industry to reduce cost and risk and grow business.
DTCC staff and the industry representatives highlighted the need to think strategically over the longer term while carefully allocating limited technology resources to immediate automation needs. “This balance can be reinforced by revisiting the development agenda regularly to confirm choices made,” said Randi Gordon, vice president, Product Management.
One carrier representative concluded, “The industry as a whole, including the vendors working in the order entry space, must be encouraged to embrace a strategic approach to automation and standardization. Short-term profits for individual firms must be weighed against the larger issue of long-term growth for the entire industry.”