Prudential Financial, Inc., is in the process of acquiring American Skandia Life Assurance Company, the U.S. subsidiary of Swedens Skandia Insurance Company, Ltd., in a $1.27 billion deal. Prudential is targeting attractive growth possibilities, according to a statement announcing the acquisition at the end of last year.
At that time, Vivian Banta, vice chairman of Prudentials insurance division, said, Prudential plans to distribute American Skandia products under the Prudential-American Skandia brand. We expect to achieve cost efficiencies and marketing synergies as we integrate the business over the next year and a half. American Skandia is the largest distributor of variable annuities through independent financial planners in the U.S., and it also operates a mutual fund business. Now in a quiet period, neither company would comment further on the acquisition.
Nevertheless, it would appear the synergies dont stop there. American Skandia has been known for its innovative technology, but Prudential has made technology inroads of its own over the last five years, according to Dalbar, a financial services research firm, which recently gave Prudential an award for client service. The key technology advantage Prudential has over American Skandia is its sales system, explains Lou Harvey, Dalbar president. Prudential offers a totally paperless system, enabling an agent to go from lead to contract on a fully automated system. Theyre one of the first companies willing to adopt the e-sign principle that says you dont have to have a wet signature in order to do business.
Nick Campanella, vice president, annuities technology at Prudential, describes the firms technology. We have an electronic application that runs on our enterprise LaunchPad laptop computer program as a tool, and it can be used either connected or disconnected, he says. The electronic application has a little signature pad, and the latest forms the agents need are always available because theyre electronic.
For a big-five wirehouse investment firm, thats remarkable. Compliance hurdles, NASD approvals, and any number of regulatory hoops have stymied large brokerage firms from easily assimilating these kinds of technological developments. Prudential has been going through several transformations over the past five years, says Harvey. The biggest thing that happened on its wirehouse side was getting out of the investment banking side of the business and focusing more on retail. But the agents and advisers who sell life insurance and property and casualty saw a big step in Prudentials technology development.
Part of Prudentials strategy lies in its educational system, says Harvey.By implementing new computer-based training technology, the firm raised the educational level of its sales force above that of the rest of the industry. That placed it in a position to achieve several technological innovations from that point on. One such innovation, according to Harvey, was its consumer Web site (www.prudential.com).
Marc Levine, Prudentials vice president of annuity operations, states, Our people need to represent themselves in a knowledgeable manner and to be able to answer clients questions. They need to be supported by a strong technology platform that gives them access to the information they need.
Technology is a facilitator, an enabler, adds Campanella. It gets [agents and customer-service people] the information quickly, its all in one place. Training is easier now, as well as product development.
On the client service side, The beauty is [the Web site] offers access across its entire product line. Its huge in terms of comprehensive, user-friendly, state-of-the-art consumer sites, Harvey says. One of the outstanding things American Skandia brings to the table for Prudential is its Web site offering for advisers. Prudential has been hesitant about going down that path for compliance reasons, continues Harvey, but American Skandia has certainly blazed that trail, and Id expect Prudential to carry it on.
From a technology perspective, Pru-dential has been busy. We had a major conversion over the last 18 months that consolidated all our products onto one platform using imaging and workflow to help facilitate the process, says Campanella. Were very interested in developing new products, and were in tune with our product arm to make sure we can deliver the products it needs within the timeframe it needs them.
In addition, Prudential just began providing service through Info-Ones VARDS trading system, an industry portal called Pivot that allows Prudential to take annuity applications from third parties. Were just beginning to roll that out. We went live with it about a month ago, says Campanella. Pivot provides an interface that feeds directly into Prudentials core platform, allowing applications coming from any source imaging, the fully automated system, or the VARDS Pivot portalto be aggregated in one central processing point.
Leveraging Service
All this technology certainly hasnt hurt Prudentials service. Indeed, Prudential was awarded Dalbars Service Award for excellence in annuity client service for retail customers at the end of January. American Skandia has stood out for its service and unique focus within its distribution channel, making it a snug fit for Prudentials marketing focus. The young variable annuity companys superior service was founded on its innovative technology. But lately, that top-ranked service has declined, says Harvey.
We do an annual survey, and weve seen American Skandia drop from the very top of the service heap to barely an also-ran, explains Harvey. Prudentials a different story. It has been second quartile service-wise consistently for years [in Dalbars ranking system], and its risen to an eight out of 40, ranking it in the first tier. From todays standpoint, an adviser or agent moving from American Skandia to Prudential would celebrate.
Established in 1987, American Skandia is a fairly young subsidiary of Skandia and was formed to take advantage of the growing variable annuity market in the U.S. It started with a blank sheet of paper and built up an operation over a dozen or so years, and was able to do a lot of innovative things starting with fresh technology, says Rodney Clark, a director of Standard and Poors financial services ratings division.
The company differentiated itself by providing financial planners with Web-based tools to make it easier to do business. Security-based systems enabling planners to access their commission activity is pretty common, according to Clarks colleague, analyst Kevin Ahern, also a director of financial services ratings. American Skandia took it a step farther. It customized Web pages for the planners, allowing for co-branding, explains Ahern. For example, it might have a personal page that would link to other areas that provide current information, investment performance reports, and such.
Harvey concurs. The firm has a fairly slick automated system for doing it. If Im an adviser and I want a Web site, I can log into American Skandia, put in some parameters, click a few buttons, and voil, I have my new Web site. From a technology standpoint, thats a really cool thing to do. The downside is it has not received the level of usage that would make it a hallmark of success.
Developing a Presence
The firm knew the Web pages were an opportunity to get its name out in front of the planners, and it tried to do as much as possible from a technology standpoint to leverage it. This effort, along with the market downturn of the last couple of years, in part may have caused the drop in sales in 2002, contributing to American Skandias vulnerability. Weve always viewed [the financial planner] channel as kind of high cost, high touch, adds Ahern. The high cost really comes from the technology, so to be in that channel, you need to have coverage and scale.
Enter Prudential Financial. Its family of companies includes a major brokerage firm offering a vast array of products to investors, as well as an insurance arm, financial planning arm, and a consulting arm. Not to mention its technological capabilities on the insurance sales side.
With American Skandia under its wings, its product offering will become that much more complete, lacking only a banking side. At the time ofthe acquisitions announcement, Prudential stated the Skandia purchase would catapult the firm to a top-10 spot in the annuity marketplace, attesting to American Skandias strength in not only the variable annuity channel, but the entire financial planner network. Pru-dentials sales position in the marketplace will rise from 22nd to sixth when the deal is closed, and its assets under management position will jump from 14th to fourth.
Bringing It All Together
Clark and Ahern firmly feel the combination of the companies will provide strong cross-selling opportunities. Its a good fit to the extent American Skandias relationship with these planners will allow Prudential to bring in its full product line, including life and the separate account products, says Ahern.
Clark agrees. Prudentials public announcements have stated it was going to enhance Prudentials scale in variable annuities, bringing co-efficiencies and marketing synergies to variable product management and innovation, but [the firm is] also hoping to export some of Prudentials products to the financial planning channel. American Skandias substantial presence in that channel would expedite that type of cross-selling.
Integrating the two companies technology-wise will probably not present many challenges. Most of American Skandias back-office systems are farmed out, so Id expect it to just fire the vendors and use Prudentials back-office capabilities. American Skandia is Web based, and theres a lot Prudential could pick up from American Skandia, Harvey speculates.
On the insurance side, legacy systems still drag Prudential, but only to a small extent. Being an old-line life insurer, [Prudential] still has some problems inherent with having legacy systems, although its been working for years to convert to more modern systems. Ameri-can Skandia, on the other hand, was built to be scalable, so it probably has a lot of powerful technology that can be easily exported to Prudentials environment, explains Clark.
Assessing the state of Pru-dentials legacy systems, Cam-panella says, Weve mixed in the legacy systems with other products, and some of those remain, but we have moved all annuity products off those legacy systems. Basically, anything that represents growth for us, which is the bulk of our business, has been converted to the new systems.
More Deals to Come?
According to Clark, American Skandia is unique in its structure. Not too many companies are strictly variable annuity players. However, weve already seen diversified companies with smaller variable product divisions that really didnt have scale being sold off. CNAs sale of its variable product division to Phoenix was a recent example, he says.
With the underperformance of the equity markets, the amount of assets in variable products has declined, and therefore, fee income has declined. Clark says, Thats going to continue to create an environment for consolidation plays for variable annuity business.
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