Filed Under:Carrier Innovations, Technology Implementation

A proactive approach to working with regulators

Opinion: InsurTech Talk

This writer argues there is considerable room for improvement when it comes to educating regulators about the insurance industry. (Photo: iStock)
This writer argues there is considerable room for improvement when it comes to educating regulators about the insurance industry. (Photo: iStock)

The relationship between insurers and regulators has always been challenging.

This is true for any number of reasons, some of which are understandable given the nature of the roles that regulators perform, and the sheer number of requirements across the U.S. For instance, an approach to policy pricing that's approved by regulators in one state can be identified as problematic in another.

New York and Washington are generally recognized as being among the most stringent regulators. In fact, the complex regulatory environment that helped lead to the demise of Google Compare was, in part, due to state-by-state variations and corresponding hurdles. 

On the bright side, the friction between regulators and insurance companies can be reduced. I recently had the opportunity to ask a room full of insurance leaders how many of them had programs in place to collaborate with or educate regulators. The lack of response was telling; there is considerable room for improvement.

The industry-wide momentum surrounding InsureTech places prominence on increasing speed-to-market for new products, as leading insurers are eager to apply new technologies to improve the customer experience. They are also implementing predictive analytics to better target their offerings and improve underwriting profits. This is causing an industry wide challenge, as the first-mover advantage can often get held up with regulators who don’t have enough information to streamline an approval. Case in point: the thorny debate on price optimization.

Related: When worlds collide: Insurers and InsurTech

What follows are three things that insurers can start doing in order to more effectively improve their working relationships with regulators.

No. 3: Understand the challenges regulators face.

It’s important for insurers to understand that their counterparts in regulatory offices have very different experience levels, career paths and motivations. Many regulatory roles are filled in a transient nature via political appointment. Thus, a change in state government can lead to a change in both the people overseeing policies and the policies that they’re enforcing. The political pressure, changing headwinds, and other practical realities impact how decisions are made. Regulators have to find the most efficient way to proficiently understand a wide ranging variety of topics and make the appropriate judgement calls.  

In addition, very few of these roles are being staffed by statisticians or data scientists. While the use of big data and analytics is prevalent in the insurance industry, those tasked with overseeing it often don’t have the background to easily understand the math being layered in.

Related: Insurance, data analytics and internal operations: untapped opportunities

No. 2: Be an educator.

The insurance industry has hundreds of years of data that are incorporated to support decisions. Insurers can highlight things that have been learned along the way, and point to specific examples when trying to explain how a new model works or why a product is being priced or portrayed in a specific way to regulators.

This might mean presenting a simplified explanation of the business reason for a new model or product, the impact/benefit to the consumer, along with an easily digestible version of the underlying data (while having the full supporting data available to answer questions). For instance, if an insurer is building a predictive model, for example, they should explain clearly what kind of data is being fed into the model, what is being left out, and why this is the case.

Related: Can the P&C industry handle big data?

No. 1: Involve regulators early and often.

Insurers can secure buy-in for products and models early in the process, often by setting up quick consulting calls to talk through products in their idea phase/infancy and to find out where a regulator will have questions or concerns. That can save both parties an enormous amount of time and the potential for confusion, which can lead to an unnecessary regulatory hold up or denial.

Regulators are generally open to ongoing dialogue and continual iteration. In fact, the National Association of Insurance Commissioners is trying to bridge the gap, having recently created the Innovation and Technology Task Force, geared towards facilitating bottlenecked interactions between carriers and regulators. But the need for this task force is proof that the engagement with regulators should start earlier to avoid these issues from the outset.

One thing that’s been known to expedite approval for new analytics models or products is a running internal FAQ.  Insurers should document common concerns that regulators bring up in these conversations to inform. A carrier that knows the questions they’ll be asked can more easily address them and minimize confusion throughout the approval process.

The ability to launch analytics models, innovative tech or new products is largely contingent on regulators approving those products. Those insurers who work with regulators through each step of building new products and policies will find it easier to expedite the process.

Dax Craig is the CEO and president of Valen Analytics®, an Insurity company, and provider of proprietary data, analytics and predictive modeling for P/C insurers. He can be reached by sending email to Dax.Craig@valen.com.

The opinion expressed here is the writer's own.

See also:

The 'famous five': solving the InsurTech mystery

How carriers can leverage the power of big data

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