2023 insurance regulatory outlook

An overview of the topics presented in our 2023 regulatory outlook:

Climate change: Requirements for climate risk disclosure and management are expected to filter through every area of the insurance sector, driven by deep-reaching rules that are either now in place or primed for implementation.

Artificial intelligence (AI) and machine learning (ML): AI and ML have sharpened insurers’ risk assessment tools, but care must be taken to avoid creating biased outcomes in both the selection and underwriting of policies. States are considering ways to test for unbiased consumer outcomes and will look for ways to change laws and shape potential or existing insurance regulations based on what they find. We anticipate the NAIC will issue a guidance framework for managing the use of AI this year.

Cybersecurity and data security: With the exponential growth of digitization and the sophistication and prevalence of hacking, a great deal is at stake—from a company’s financial stability to its reputation and the trust it has built with its supervisors and with the public. Regulators are pushing for heightened controls, more robust testing, and more detailed and faster disclosures, with ramifications for the entire industry.

Data privacy: Challenges will continue for companies to create a system to ensure that sensitive customer information is safeguarded or destroyed as required, even as this data grows exponentially in the coming years. Regulators are poised to increase their scrutiny of whether data is used appropriately and is secure and well-guarded, so insurers need to remain vigilant as they put systems in place to comply and identify vulnerabilities.

Capital, reserve requirements, and solvency monitoring: Financial regulators are reviewing investments underpinning reserves by companies, particularly those investments seeking to increase yield and alternative asset security structures that might need closer evaluation. As solvency considerations are foremost in financial regulators’ minds, they are also seeking more information on the underpinnings of offshore reinsurance transactions, which may allow for regulatory arbitrage between capital regimes.

Consumer protection: With the Best Interest Standard regime now more entrenched at the state and federal levels, regulators have more tools in place to help safeguard the consumer. Well-managed internal company controls that ensure follow-through in all stages of the sales and claims process along with meticulous record-keeping will continue to be necessities in 2023.

Steps you can take

The year ahead will likely see increased regulation that governs the insurance industry’s compliance requirements, adding more complexity and the need for greater oversight of all aspects of a company. Insurers should work to implement robust internal systems that will be ready when challenged by outsized storms, catastrophic security breaches, and the potential for algorithmic bias—as well as robust regulatory and legislative inquiries into their responses to these events—and monitor their use. Download our report to learn more.

If you are interested in learning more about the insurance industry, check out our 2023 financial services insurance outlook here.