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Perspectives

Insurance regulators ready to embrace new technology

Should carriers be as well?

Predicting the future is hard, but one tries nevertheless because with preparation and planning, one can manage risk to minimize losses and maximize opportunities for growth.

March 21, 2018

A blog post by Andrew N. Mais, insurance regulatory specialist, Deloitte Services LP.

Insurers know better than most that with preparation and planning, one can manage risk to minimize losses and maximize opportunities for growth. That may help drive them to prepare for what seem likely to be significant changes in the regulatory system, based on recent moves by regulators and the results of our new research report, “Insurance regulators in an era of advanced technologies: Challenges and opportunities in oversight.”

The findings in our report are based on a recent survey of state insurance regulators. We wanted to see what regulators thought of the technology now available to insurers, and find out if they had plans to use new technology tools themselves. Representatives of 28 of the member jurisdictions of the National Association of Insurance Commissioners (NAIC) responded to the survey.

The results were actually quite easy to summarize: state insurance regulators will not be left behind. Respondents consistently told us that they expected to adopt various advanced technologies to enable them to better carry out their mission of consumer protection and solvency assurance.

Figure 1. Expected change in technology use in 3-5 years

us-expected-change-in-technology.jpg (734×341)

 

Regulators were asked, “Compared to today, what will be the likely level of technology usage by insurance regulators for the following activities in the next three to five years?” The answers are revealing.

In overseeing licensing of insurers and agents—an area where almost 80% of regulators responding to our survey thought technology use was currently heaviest—65 percent said technology still would be used either somewhat or significantly more than today.

Sixty-nine percent of respondents said they were either fully or almost fully dependent on technology to audit insurer financials, with 74 percent expecting increased use. This is not surprising. Licensing and financials are areas where information is broadly available, and—by comparison to the possibly fuzzier world of market conduct—more easily analyzed.

That is changing. There are probably upcoming new requirements for market conduct information, such as we have seen in proposals from the NAIC and the New York State Department of Financial Services to update suitability standards for annuities and/or life products.

Insurance regulators in an era of advanced technologies

Read the report

How will regulators use market conduct data?

One might wonder how regulators foresee using additional market conduct data. In our study, we found that the market conduct area was currently one of the least reliant on technology. Only 42 percent of respondents said they were fully or heavily dependent on technology to respond to consumer complaints, with 46 percent saying the same about providing information and education to consumers, and a similar 46 percent about ensuring proper market conduct overall.

An increase in the amount of market conduct data regulators may receive does not necessarily translate into an increase in standards or actions. The potential is strong, given transformative new tech tools available.

These include robotic process automation, advanced analytics, cognitive intelligence, and sensing technologies. They may allow regulators to undertake the type of discrete, real-time monitoring that could help identify problems before they become widespread.

There is clear regulatory interest in technology use for market conduct purposes. Approximately 80 percent of regulators expect to increase their use of technology in the next three to five years to respond to consumer complaints, provide information and education to consumers, and ensure market conduct.

Recent moves by state regulators confirm our report’s findings of their desire and drive to adopt these technologies, and their focus on securing the necessary resources. One goal of the recently released NAIC strategic plan, “State Ahead,” is to provide “optimal services to support state insurance departments and equip them with the necessary talent and resources.”1

Announcing the plan, NAIC leadership noted that regulation needed to keep pace with technological change, and the plan provided a roadmap for the NAIC and states to have a leadership role. They projected building a new regulatory framework in the next three years, with the NAIC making a significant financial commitment. The NAIC wants to be positioned to provide its members with new analytics, technology, and tools to more effectively regulate their markets by the end of 2020.2

There is clear regulatory interest in technology use for market conduct purposes. Approximately 80 percent of regulators expect to increase their use of technology in the next three to five years to respond to consumer complaints, provide information and education to consumers, and ensure market conduct.

An early warning to insurers

So there it is. Three years. Consider our report, “Insurance regulators in an era of advanced technologies: Challenges and opportunities in oversight,” and the NAIC’s strategic plan early warning. There is much more in the report that may help inform industry action. The question may be what to do now—wait for the wave to hit and hope to survive, or start using all available tools to find safer ground?

What do you think insurers should do?

Will their own efforts to adopt regtech provide a safe harbor? Join the conversation on Twitter: @DeloitteFinSvcs.

National Association of Insurance Commissioners, “State Ahead strategic plan,” February, 2018
Ibid.

QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.

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