Controls efficiency and its impact on the insurance sector
Regulatory Outlook 2017
RegTech promises to enable firms to push down costs, rein in compliance risk and improve controls. However, the effective implementation of RegTech solutions will require up-front investment that may be hard to justify in the difficult commercial conditions that will prevail in 2017. So how does this apply to the insurance sector?
Deloitte's prediction in a nutshell
The post-crisis increase in both regulatory requirements and supervisory scrutiny means financial services firms are spending ever increasing amounts of money and resources to manage their compliance risk. This cost, especially in the current low profitability environment, has now reached unjustifiable levels in the eyes of some investors. Given this situation, we expect the following:
- The imperative to reduce compliance costs will make it essential for firms to turn to new technologies to achieve efficient controls and value for money.
- New RegTech solutions will proliferate, although their adoption will be gradual as firms seek comprehensive solutions that add value beyond compliance.
RegTech’s added value to the insurance sector
One of the areas where RegTech solutions may bring the most added value to insurers, MGAs and insurance brokers is around the management of delegated authorities (DA). Insurers, MGAs and insurance brokers use significant populations of DA to distribute their products, as well as handle their claims and complaints. These populations can span from hundreds to thousands of agency relationships. Although regulatory expectations about the control and oversight of these relationships have increased significantly over the last few years, firms are still using manual processes that are not fully or adequately risk-based. This issue applies equally to the oversight of Appointed Representatives.
RegTech solutions could help to streamline, automate and enable the workflow of an end-to-end DA framework, including risk assessing each DA and automatically determining the appropriate take-on due diligence and oversight and audit processes. Among the added benefits, firms will have an accurate audit trail, for reporting and supervisory purposes.
Deloitter Maurice Knecht shares the challenges of RegTech in the insurance sector
"RegTech is not new. While it might sound new to many, the marriage of technology and regulation to address regulatory challenges has existed for some time with varying degrees of success. Increasing levels of regulation, rapid innovations in computer technologies and a greater focus on data and reporting has brought the RegTech offering into greater focus, which does not only create value but also poses a challenge to insurers, MGAs and insurance brokers.
A challenge regarding RegTech lies in a lack of circumference of what RegTech is in terms of available technologies. Clarity on which parties cooperate within a RegTech sphere, and how they do that is not always very clear either. This can make it difficult to explain what RegTech is. When it is hard to explain what it is, it is not to be expected that the technologies under this umbrella are to be embraced. As a result, many of the benefits that RegTech has to offer are bypassed. In order to avoid that, more insights into how RegTech can be of help is welcome.
Instead of focusing on the applied technologies, it can be viewed from a different perspective: to view RegTech along the lines of what problems can be solved, and what data sources are available in order to use these technologies optimally on an internal and external level. Current questions in the Dutch insurance industry for example, are how effective Client Due Diligence (CDD) policies, and Know Your Customer (KYC) processes can be deployed. Effectiveness has components of sufficiency and proficiency, as well as costliness to it. And this is where RegTech can be of help, by means of applying risk-based controls, within acceptable costs to these policies and processes.
Therefore, the quest in RechTech might be not so much of what technologies are to be used. But much more of how technologies can be used in such a way that optimal and economically sensible implementation of regulatory processes can be achieved. This just might balance the amount of investments needed as demanded by compliance, and profitability of business."
Maurice Knecht | Risk Advisory Manager
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