Annuity Companies Look to Simplify the 1035 Process

February 13 2019

by Kati Hess

The 1035 exchange isn’t known for efficiency. An exchange between annuities usually requires multiple signed documents, a lengthy compliance and suitability review, and settlement as the funds are transferred between carriers. It’s not unusual for an exchange to take weeks, if not months.

That could be changing though. According to a recent article in InvestmentNews, annuity carriers are taking steps to streamline the 1035 process. Much of this work is being driven by technology, as carriers look to digitize everything from signatures and paperwork to compliance and settlement.

In the article, Kevin Kennedy, head of individual life insurance at AXA Equitable Life Insurance, said, “I think the whole industry has decided this needs to happen. All the carriers have really stepped up.”

A revamped 1035 process would be fueled by technology at nearly every stage. Agents and clients would fill out electronic applications, complete with digital signatures. Paperwork between the two carriers would be transferred digitally, which would greatly reduce the processing time. And finally, funds settlement could happen electronically.

The Insured Retirement Institute (IRI) is helping to drive these changes through a working group. The IRI group is examining all annuity transactions and identifying areas where technology can improve the consumer experience.

Industry groups like IRI and FINRA are also considering how an expedited 1035 process may impact suitability and compliance. Some are concerned that a digital process could fuel an increase in unsuitable sales. A recent FINRA report identified deficiencies in the annuity sales process, particularly involving variable annuity 1035 exchanges.

Even with those concerns, however, it seems inevitable that carriers will move towards a simplified, expedited 1035 process that leverages technology. That could be an important development for financial professionals as annuities grow in popularity with investors.

Annuity sales were down significantly in 2017, finishing the year at just over $200 billion. Sales for variable, fixed, and indexed annuities were all down from 2016 sales figures. However, sales rebounded in 2018. Through the first half of the year, sales were up more than 5 percent. Fixed indexed annuity sales were up nearly 20 percent over the previous year.

The increase in annuity sales were driven by a few factors, including an increase in interest rates and the death of the pending Department of Labor fiduciary rule. Increased market volatility in the fourth quarter could have also contributed to increased annuity sales.

As retirees look for protection and guaranteed income, annuities may continue to rebound in popularity. An expedited 1035 process could help advisors and clients move from older policies to newer ones with more competitive interest rates and stronger guarantees.

Join the conversation