There are many moving parts to using an Annuity Order Entry Platform/data exchange, and connecting them to DTCC data exchange and money settlement services. We are going to approach this from a Carrier’s implementation and outline their costs. Let’s start with reoccurring services for each category, and then show you some of the implementation cost models involved.
DTCC has monthly fees, transaction fees, and connectivity fees. If you are using DTCC’s money settlement services, then most fees will be debited from the carrier’s settlement bank. The only exception as a default is a separate monthly invoice for SMART Connectivity Services. Data transaction fees are shown in an invoice from iBill online and as a PDF. Activity with analysis are on the monthly DTCC PIER Reports (Participant and Efficiency Information Reports). Each year DTCC publishes fee guides and has an online calculator to figuring out costs based on volume for data exchange services like daily Financial Activity Reports (FAR), Position Files, Commissions, and Annuity Applications submitted. The DTCC Smart Connectivity pricing for example for a Dedicated T-1 is also listed in a fee guide. These documents have been downloaded from the DTCC website and linked in the InsurTech Express documents repository, and there is a link to the online DTCC I&RS Calculator. See Fee links below:
NSCC 2021 Fee Guide for Insurance and Retirement Services: NSCC 2021 Fee Guide
Fee Calculator for Insurance and Retirement Services: Fee Calculator
SMART Connectivity Services Fee Guide 2021: SMART Fee Guide 2021
DTCC Data Exchange & Money Settlement 2021 Holiday Schedule: Holiday Schedule 2021
DTCC Implementation Costs
If you are becoming a carrier DTCC member for the first time, there is a lengthy 6-9 month process to get approved; and there are several steps to the membership process. There is the setup for connectivity with your hosting circuit provider and DTCC; developing the inbound and outbound data files from your Policy Admin System; setting up a Settlement Bank; building you users for DTCC; setting up products; building the test and production environments; contracting, connecting and testing with distributors direct and/or with clearing firms; building internal New Business, Inforce and support processes. Yes this is a huge project if you are starting from scratch. Below are the top 10 general key costs:
- DTCC Membership and Attorney fees
- Dedicated Circuit and DTCC connectivity fees
- Internal development and testing for inbound and outbound data transactions
- Setup Settlement Bank and testing for Money Settlement such as App Premium, Netting Commissions, Gross Commissions and Subpays
- DTCC User Setup
- Product CUSIPS and Product Setup
- Secure Data File transfer processes and Web Portal for Testing (PSE) and Production Environment
- File Attachment Services setup
- Distributor partners setup including Clearing Firms if applies
- AOE Setup
Annuity Order Entry Platform Costs (AOE)
There are just a few solution providers that have platforms dedicated for fixed and variable annuities and also connected to DTCC Services. The 3 main solutions are AnnuityNet by Ebix, Affirm for Annuities by iPipeline, and FireLight by Insurance Technologies. Annuity Order Entry Platforms have much more functionality than a life insurance eApp solution. AOE platforms have critical functionality such as distributor compliance review workflows, suitability analysis, supports annuity subpays, and may have annuity maintenance features that can be turned on by a distributor just to name a few.
Data Exchange Transaction Fees for AOE
Data Exchange for Annuities is typically a transaction fee per application not a subscription model. The transaction fees may have discounts based on monthly or annual volumes. When calculating your costs per application, you need to take into account the annual license or different types of maintenance fees, which are fixed prices. This is a volume driven model.
Implementation Costs, Additional Services and ongoing Maintenance
There will be an initial setup fee that covers many of the setup costs depending on the vendor such as mapping forms and creating on screen questions. There are some services bundled like eSignature and some services that require additional fees. You will have setup and access to various testing environments and the production environment. Building out the product profile either using a standard ACORD PPFA format or self service product administration tool the initial setup of the product will probably be additional professional services fees charged at an hourly rate as part of an SOW / Work Order. Fixes, changes or adding new products may fall under different categories. Usually an initial implementation is tied to a scheduled platform release, but other changes, additions and fixes are not. There are some self service tools, third party providers, or the platform vendor also offers these professional services. There are different levels of maintenance that fall under the platform license and covered under the Service Level Agreement (SLA). Buying blocks of time for estimated work throughout the year is a good way to budget.
Clearing Firms and Data Exchange Fees
There are banks and broker dealers that are members of clearing firms to handle trades. These clearing firms add another level of complexity to the process. After going through contracting process with the clearing firm such as Pershing LLC or National Financial Services-Fidelity, then connectivity has to be setup. There will be specific onboarding requirements for each DTCC data transaction, which could differ per distributor. The AOE transaction fees will be paid to the clearing firm and not the platform vendor. These fees are outlined in the contract. There could be other transaction fees and/or annual fees for handling position files for example.