Spotlight: Tackling insurance’s regulatory tsunami

Waves of regulatory initiatives are driving up costs, reducing profitability and slowing down business. How can insurance firms respond to these challenges?

The insurance sector is traversing a period of significant regulatory change.

A raft of new regulatory initiatives is placing ever-increasing pressure on firms as they overhaul their processes and adapt to new reporting requirements.

Eighty per cent of general insurance compliance professionals are struggling with high levels of regulatory burden according to a recent survey by REG Technologies, and 69% feel this burden has increased in the last year.

 

For many firms this has meant rising compliance costs, with time, resources and focus being diverted away from other areas of their business. Two-thirds of companies surveyed (66%) feel statutory and regulatory obligations are slowing down the start of new business, for example.

But what solutions are available and how can the industry respond?

Implementing technology

Advances in technology mean a growing range of use cases, tools and solutions can now be deployed to help firms manage their regulatory workloads and streamline processes.

Companies across the industry are exploring how technology can improve efficiency, automate tasks and manage large volumes of data, while minimising the risk of errors and inconsistencies.

“There is a growing recognition within the insurance industry of the limitations of manual processes, and many insurers, including AXA UK, are investing in technology solutions to address this,” says Rob White, chief compliance officer at AXA UK&I.

John Warburton, co-founder of specialist insurtech broker Konsileo, outlines how technology has provided significant benefits in terms of the speed and ease with which it can adapt and implement new processes.

“All of our files are electronic. When it comes to Treating Customers Fairly, rather than conducting manual file reviews, we have automated the tick box elements.

Technology gets rid of the mundane processes, allowing us to quickly get to the information we need, and making it a lot easier to collate, analyse and produce data.

Stephen Gibson, Avid Insurance

“We then run peer review ‘sniff tests’ on a certain percentage of files and in-depth full file peer reviews on one or two files per person, per month,” he explains.

“With fair value assessments, our technology meant we were able to use these same peer-to-peer principles.

“Rather than running one large project to put everything in place, the first person who sold a particular product completed the FVA (fair value assessment).

“The next person then checks if an FVA already exists and if there is anything to update. For many brokers, a lack of technology meant they needed to write Encyclopaedia Britannica, and instead we were able to create Wikipedia.”

Specialist MGA Avid Insurance also feels technology gives it an advantage.

CEO Stephen Gibson says: “We are investing heavily in our data and technology capabilities.

“Technology gets rid of the mundane processes, allowing us to quickly get to the information we need, and making it a lot easier to collate, analyse and produce data.

“Our data warehouse puts us in a really good position compared to insurers that operate in a more compartmentalised way.”

Alongside technology, firms are also investing in people.

The right expertise, training and culture are all seen as vital.

Gibson confirms: “Technology is there to complement not to replace, rapidly providing information that enables really good people to make the right decisions.”

Overcoming obstacles

Despite the proliferation of technology, the market remains hesitant.

According to REG Technologies, only 25% of insurance firms are currently using a regtech system.

There are also signs the industry is still relying on inefficient and error-prone manual processes, with 41% using spreadsheets to manage regulatory, legal and compliance risks and 14% using paper. 

“It is important to note that integrating the latest technology, while beneficial, can also come with its own set of challenges, including the cost of implementation, legacy systems integration and data security and privacy risks,” explains AXA’s White.

Small brokers particularly struggle with the costs of technology and are more likely to be wedded to their broker software provider’s system.

“Looking from the outside, the core broker platforms do not seem as adept at quickly adapting to changes,” says Warburton.

“It is a challenging situation. The majority of commercial insurance brokers decided 20 years ago to outsource their IT and don’t have much internal technology infrastructure as a result. Any technology skills have also since left the industry.”

With 42% of insurance compliance professionals either completely unaware of the benefits of regtech or not feeling they know enough about it, there is work to be done on education and awareness.

 

Industry collaboration

Tackling the ever-increasing regulatory burden also requires a joint effort from industry.

Companies cannot work in isolation and should be sharing best practice, working with their distribution partners and capacity providers.

As White outlines: “Some elements of our regulation are not entirely prescriptive and firms are required to make their own interpretations.

“This can sometimes lead to inconsistency in terms of outcomes for customers across the industry.

“To minimise the risk of this, it is important for brokers and insurers to talk, ensuring that we are learning from each other.”

This industry collaboration also extends to advocating for more balanced and proportional regulation. 

International competitiveness

Externally, pressure is building on regulators.

The Financial Services and Markets Act (FSMA) introduces a secondary objective for the FCA to advance international competitiveness and economic growth, while BIBA’s manifesto calls for approved metrics to measure the FCA’s performance in this regard.

In theory, an outcomes-based approach should lead to a repositioning of the regulatory workload.

David Sparkes, BIBA

“The return of the international competitiveness requirement has been welcomed by the insurance sector,” says David Sparkes, head of regulation at BIBA.

“I think the FCA is alive to this requirement and that may help to relieve the burden.”

“Although not yet fully formed, the FCA’s shift to outcomes-focused regulation could also have a positive impact,” he adds.

“In theory, an outcomes-based approach should lead to a repositioning of the regulatory workload.

“It shouldn’t need as many new rules or lengthy tick box processes, and places the emphasis on understanding what is effective in producing the right outcomes for customers.”

Customer concerns

It is this focus on customer outcomes that many feel should be of paramount importance.

Andy Fairchild, adviser at Julyfourth Services, who holds a number of non-executive director roles, explains: “Undoubtedly the quantum and complexity of regulation is having an operational impact, but the focus must be on ensuring that these regulatory burdens do not impact the ultimate goal of better outcomes for end-customers.

“The critical role of technology should not just be improving operational efficiency, it should be ensuring these better outcomes, building greater trust in the industry and making it easier for end-customers to understand the products they are buying.”

Future workloads

After the last five years of significant and complex regulatory initiatives, market practitioners are desperate for a period of calm.

“The FCA needs to give their new approaches time to breathe, and let the industry find ways to efficiently manage their requirements, rather than adding yet more initiatives on top,” says Warburton.

Gibson agrees, calling for “a period of stability”.

“A period of stability will allow businesses to understand where they can drive efficiencies, ensure they are focusing on the right areas and give them the confidence to invest.”

Regardless of future regulatory workloads, there is now a heightened focus on the need for agile and adaptable strategies that can keep pace with an ever-evolving landscape.

Regtech adoption will likely continue to grow as companies search for efficient, flexible and innovative solutions to the complexities of regulatory compliance.

Read the full findings from the REG Technologies research on Insurance Hound 

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