The relationship between insurers and regulators has always beenchallenging.

This is true for any number of reasons, some of which areunderstandable given the nature of the roles that regulatorsperform, and the sheer number of requirements across the U.S. Forinstance, an approach to policy pricing that's approved byregulators in one state can be identified as problematic inanother.

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

On the bright side, the friction between regulators andinsurance companies can be reduced. I recently had the opportunityto ask a room full of insurance leaders how many of them hadprograms in place to collaborate with or educate regulators. Thelack of response was telling; there is considerable room forimprovement.

The industry-wide momentum surroundingInsureTech places prominence on increasing speed-to-market fornew products, as leading insurers are eager to apply newtechnologies to improve the customer experience. They are alsoimplementing predictive analytics to better target their offeringsand improve underwriting profits. This is causing an industry widechallenge, as the first-mover advantage can often get held up withregulators who don't have enough information to streamline anapproval. Case in point: the thorny debate on priceoptimization.

Related: When worlds collide: Insurers andInsurTech

What follows are three things that insurers can start doing inorder to more effectively improve their working relationships withregulators.

No. 3: Understand the challenges regulatorsface.

It's important for insurers to understand that theircounterparts in regulatory offices have very different experiencelevels, career paths and motivations. Many regulatory roles arefilled in a transient nature via political appointment. Thus, achange in state government can lead to a change in both the peopleoverseeing policies and the policies that they're enforcing. Thepolitical pressure, changing headwinds, and other practicalrealities impact how decisions are made. Regulators have to findthe most efficient way to proficiently understand a wide rangingvariety of topics and make the appropriate judgementcalls.  

In addition, very few of these roles are being staffed bystatisticians or data scientists. While the use of big data and analytics isprevalent in the insurance industry, those tasked withoverseeing it often don't have the background to easily understandthe 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 areincorporated to support decisions. Insurers can highlight thingsthat have been learned along the way, and point to specificexamples when trying to explain how a new model works or why aproduct is being priced or portrayed in a specific way toregulators.

This might mean presenting a simplified explanation of thebusiness reason for a new model or product, the impact/benefit tothe consumer, along with an easily digestible version of theunderlying data (while having the full supporting data available toanswer questions). For instance, if an insurer is building apredictive model, for example, they should explain clearly whatkind 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 bigdata?

No. 1: Involve regulators early andoften.

Insurers can secure buy-in forproducts and models early in the process, often bysetting up quick consulting calls to talk through products in theiridea phase/infancy and to find out where a regulator will havequestions or concerns. That can save both parties an enormousamount of time and the potential for confusion, which can lead toan unnecessary regulatory hold up or denial.

Regulators are generally open to ongoing dialogue and continualiteration. In fact, the National Association of Insurance Commissioners istrying to bridge the gap, having recently created the Innovationand Technology Task Force, geared towards facilitating bottleneckedinteractions between carriers and regulators. But the need for thistask force is proof that the engagement with regulators shouldstart earlier to avoid these issues from the outset.

One thing that's been known to expedite approval for newanalytics models or products is a running internal FAQ. Insurers should document common concerns that regulators bring upin these conversations to inform. A carrier that knows thequestions they'll be asked can more easily address them andminimize confusion throughout the approval process.

The ability to launch analyticsmodels, innovative tech or new products is largelycontingent on regulators approving those products. Those insurerswho work with regulators through each step of building new productsand policies will find it easier to expedite the process.

Dax Craig is the CEO and presidentof ValenAnalytics®, an Insurity company, and provider ofproprietary data, analytics and predictive modeling for P/Cinsurers. He can be reached by sending email to [email protected].

The opinion expressed here is the writer's own.

See also:

The 'famous five': solving the InsurTechmystery

How carriers can leverage the power of bigdata