InsurTech Express is rethinking the way life and annuity providers handle the complex challenge of commissions—leveraging technology to solve long term industry issues while enabling participants to focus on growth and serving customers.
“The Commission Blockchain plan that InsurTech Express is launching can streamline the entire commission and contracting process for participating carriers and distributors alike,” said Dan LaBert, CEO of the National Association of Independent Life Brokerage Agencies (NAILBA).
“Ken and the team have designed an innovative approach to leverage the latest blockchain technology to solve recurring challenges our members see in their businesses. I look forward to NAILBA members further engaging in this exciting new technology that could resolve commission accounting concerns.”
Insurance agents, distributors and carriers all share a common goal: providing the right insurance solution for each consumer. They obtain their rewards via commissions.
For this to work there needs to be a process which is effective and transparent. Such a seamless commission process would enable the agents, distributors and carriers more time to concentrate on what matters to them: supporting their customers.
Commissions are, therefore, an important part of the life insurance and annuity business model. However, if the commission process does not run smoothly, it:
- impedes effective partnerships
- increases costs
- wastes valuable time, for all participants.
In today’s marketplace, however, the current life insurance and annuity commission model is cumbersome. It too often consumes wasted time, for example with multiple follow up calls, investigations and other distractions. As such, in today’s insurance marketplace, the current life and annuity commission model seems both cumbersome and archaic.
The difficulty is that commission contracts are inherently complicated. There are detailed commission schedules and hierarchies. Commissions include overrides and bonuses. They funnel through several levels in the relationship ladder in a hierarchy from (say):
- independent marketing organisations
- brokerage general agents (BGA)
- general agents and agents
- the customers.
Too often the participant may not always receive the correct commission payment, or may not receive anything. If a BGA is paying commissions out-of-house for a deal they made with their top producing agents, then tracking and setting-up the commission schedules and hierarchies is difficult to implement and maintain.
Furthermore, although a commission data feed from a carrier into a BGA’s commission accounting system (even with automated reconciliation) may help validate the commission payments, holes exist which can produce errors (or omissions) in payments. For example, the quality of the data a carrier sends to a BGA may have mistakes: limitations in the setup of the BGA’s Commission Accounting System/Agency Management System (AMS) may then prevent reconciliation of renewal commissions on old blocks of business. Errors harm the trust needed for successful relationships.
“The InsurTech Express Blockchain for Life and Annuity Commissions solves many pain points that distribution and carriers have experienced for years,” said Ken Liebow, InsurTech Express Founder and Chief Executive Officer.
“This innovative approach to paying commissions will reinforce trust between all parties. By setting up commission schedules and hierarchies, the new process eliminates manual entry into Agency Management Systems. All parties will have easy and secure access to their unique respective commission statement details for all parties in one place with clean, accurate information. We are delighted with the early favorable feedback on this revolutionary model. This commission Blockchain model delivers secure and reliable capability and truly is a gamechanger!”
The InsurTech Express proposed solution
The InsurTech Express Life and Annuity Commission Blockchain proposal includes three main components:
- smart contracts,
- commission payments
- commission statements
A blockchain addresses many of the pain points life insurance and annuity commission accounting. The InsurTech Express proposed platform includes:
- trust: a blockchain replaces decentralised commission schedule data with a master held in a distributed ledger. This is a database with authorised (permissioned) access for all BGAs, IMOs and carriers participating in the blockchain network
- smart contracts: these reflect the commission rules (logic) and can be between any parties who participate in the blockchain who choose to collaborate.
- immutability: this key blockchain control feature involves mutual agreement about changes (updates); no single party can alter data introduced into the blockchain network which means there is a history of all transaction providing an audit trail
- decentralised database: the blockchain network consists of multiple nodes where the read/write functions to the nodes are controlled by the specific authorized participants — not by any entity owning the database; only valid transactions (blocks) can add to the network
- secure: cryptography makes the blockchain data secure with participants receiving exclusive private keys to authorise transactions on the blockchain.
- accuracy: when the IMOs, BGAs and carriers start using the commission information on the proposed blockchain, they ensure accurate applications and commission structures, thereby reducing the chances of error
- scalability: onboarding a carrier, agency, and agent distribution hierarchy can be fast; furthermore, a blockchain network has no limit to the number of carriers, BGAs, agents and IMOs on a network
- payment verification: the blockchain can show the amounts and timing paid via electronic funds transfer (EFT) or check; for example, the blockchain can use the transaction partners’ commission calculations to/from the commission smart contract to determine payment amounts and timing
- access to commission data: in the proposed solution a carrier sends its commission statements to the InsurTech Express Life and Annuity Commission Blockchain using an industry standard like the ACORD 1206; a carrier does not have to maintain separate data feeds to all its distributors or Agency Management System (AMS) Vendors which means the latter, once on the blockchain.
Once a distributor joins the Blockchain, they can use an online viewer to see commission data.
The key is that, once access is in one place (on the blockchain), data is decentralised, secure and accessible. If a BGA has a Commission Accounting System, it has a choice:
- use an API to import the required data into its own commission accounting system
- just access the data for reconciliation and online reporting.
“Blockchain technology has the potential to simplify and improve the overall speed and accuracy of the commission accounting process,” said Sherri Isaacson, Director of Agency Management at Ebix, a leading international supplier of On-Demand software and E-commerce services for the insurance industry.
“The establishment of commission schedules and payment transactions at a single source then shared with the distribution chain will remove one of the biggest pain points of a BGA Commission team – duplicated data entry.”
Enterprise Times: what does this mean
InsurTech Express is a technology and process improvement resource for the life insurance and annuity industry. It includes insurance carriers, distributors and solution providers and focuses on technology, process and education.
The InsurTech Express Life and Annuity Blockchain for Commissions model hopes to solve many of the antiquated issues which impact carriers and distributors today. It is a bold vision especially when, at least in the view of Enterprise Times, so much depends on smart contracts to capture the complexities of insurance policies. Is it too bold?