Life insurers and annuity companies are in an environment where competition is driving ongoing investments in IT to achieve economies in the back office. Jack Tyniec, senior manager with Deloitte Consulting and author of a new benchmarking study on life and annuity operations, believes the back office is a substantial expense for carriers. "There's a lot that goes on there, not only in the processing of new business but in processing and administering all the in-force policies and annuity contracts," he says.

Annuity companies are taking a proactive approach to put together standards and processes that link with vendors to try to make straight-through processing happen. This is similar to the way the securities industry has gone through a couple of iterations of order processing and execution, according to Tyniec. "Since the annuities business is a more streamlined process than life insurance, which has an underwriting component that can take up quite a bit of time, the annuities companies have been aggressive in trying to pursue STP," he says. "I know many annuity carriers are spending a lot of effort in looking to automate the upfront process of application, acceptance, and processing, all the way through to contract issue."

The Deloitte report shows operations and IT expenses together have decreased for annuities, but total IT unit cost for in-force contracts decreased at a lower rate. "That says to me IT expenses have not been decreasing as rapidly as total expenses," says Tyniec. "Therefore, operational expenses have been decreasing even more. I attribute that to investments in IT that have resulted in economy in the operations area. IT is contributing to the reduction of overall expenses and to operational expenses, as well."