Insuranceciooutlook

How Insurers can Cope with the Changing Regulatory Framework?

By Insurance CIO Outlook | Friday, September 27, 2019

Insurers are trying hard to cast off the shackles of challenges posed by the new regulatory environment. Fascinating to hear, isn't it? Here's the full story.

FREMONT, CA: The complexities of the current regulatory environment undoubtedly pose significant challenges for the broad spectrum of insurtech companies. As regulators continue to expect management to demonstrate compliance and risk management standards, these challenges generated will pose higher risks for firms. The demands of regulatory bodies are particularly pressing, and are demanding insurtech companies to optimize their business models and infrastructures to address the growing regulatory scrutiny and new expectations better. Across the industry, attentions are focused on improving overall performance, guided by recommendations of international standards-setting bodies and U.S. regulatory mandates.

However, to address these challenges insurance companies will need to consider implementing a regulatory change management framework that is potent of optimizing current and future regulatory demands and synthesizes both internally developed and externally provided governance, risk management, and regulatory change tools and methods. This framework will enable firms to improve coordination across their operations and gain forecasts that can enhance performance, ensure risk management and compliance controls are integrated into strategic objectives, avoid redundancy and rework, and better address regulatory expectations practically and efficiently.

Despite heightened attention from regulators and other governing bodies, insurtech firms are strengthening their governance structures and risk control frameworks, and fighting professional misbehavior, ethical lapses and compliance failures. Companies are establishing values, goals, expectations, and incentives for employees who have consistent behavior that goes well with the organizational culture. Business leaders who are responsible for implementing organizational changes and strategic initiatives are also similarly being committed, ensuring that the ‘mood in the middle reflects the tone from the top.' Firms are trying more in placing the interests of all customers and the integrity of the market ahead of profit maximization. Giving a heightened regulatory focus, insurers are experiencing some pressure to put governance and controls frameworks in place, but they are also recognizing its growing importance and coping with the demands.

It is a struggling task for insurers to improve risk data aggregation systems and reporting capabilities. Capturing and analyzing vast amounts of data in real-time remains a massive challenge for insurers, as regulators continue to levy hefty fines from insurance companies and initiate civil and criminal investigations based on failures to report required information accurately. But now insurers are handling these challenges with considering both strategic-level initiatives that facilitate better reporting. This includes a strategic framework for regulatory change management, tactical solutions, conducting model validation process, regulating data governance, and increasing employee training. By implementing a comprehensive framework that enhances governance and emphasizes higher data quality standards, insurers realize the need for more robust reporting capabilities. This realization is improving managerial decision-making and ultimately improving regulatory confidence to respond in the event of a crisis.

Cyber threat is a real regulatory risk for insurtech companies. Firms that house significant amounts of personal data are at high risk of large-scale data attacks that could further result in severe reputational and financial damage. Insurance companies around the U.S. are relying on third-party service providers to identify, assess, and mitigate cyber risks, with which, firms are witnessing potential impacts on operations, core processes, and reputations, ultimately helping to undermine the public’s confidence. Some insurers are also responding to cyber risks by harmonizing the approach to incidence response, and most have made protecting the security and confidentiality of the customer information.

The insurance sector continues to face challenges around producing core regulatory reports and other requested information, as demands from regulators have increased exponentially. Insurtech companies propose a consistent regulatory reporting system as a solution to tackle this challenge. This report is a solicited comment on the aspect of asset management, financial information, and many others. This increases transparency in fund portfolios, investment and security practices, and regulatory compliance measures. Business leaders are carefully contemplating and implementing this reformed regulatory reporting model that is a necessity in the new-age regulatory landscape. Insurance companies are reassessing the strength and comprehensiveness of their compliance risk management programs to manage better and mitigate both known and emerging regulatory and legal risks and proactively respond to prospective market structure reforms.

Compliance will continue to be a top concern for insurers as the pace and complexity of regulation change with increased regulatory scrutiny and enforcement activity, pushing concerns about the reputation risk to new levels. At this moment, insurers need to be able to respond to changes in their internal and external environments with flexibility and speed to limit the impacts of potentially costly compliance failures and business transformations. Insurers are bringing enhancements to their current compliance risk management program by building inter-relationships of the people, processes, and technologies. This initiative is further supporting compliance activities, augment monitoring and testing to self-identify compliance issues, expand root cause analysis, and integrate compliance accountability into all areas of the business. Transforming compliance in this way will surely allow insurers to align on an enterprise-wide basis with the firm’s risk appetite, strategic and financial objectives, and business models.

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