It is no secret: Investors are pouring money intoinsurtech startups with the goal of transforming the insuranceindustry.

Related: 5 top insurance tech trends for2017

This increased investment is fueling not only growth in theindustry, but also growth in the number of conferences, expos andseminars that allow companies to promote their products, buildconnections and stay abreast of the latest trends. Recently during InsureTech Connect, forinstance, more than 3,500 startups, insurers, investors, andservice providers converged on Las Vegas for the largest and mostglobal of such conferences.

Attendees at this year's event were treated to a host ofpresentations, from insightful fireside chats with entrepreneurs,such as Metromile's Dan Preston and Ring's Jamie Siminoff, tothought-provoking panels on satellite imagery, telematics,wearables and innovative strategies for insurance companies of thefuture.

Related: Here's what you missed: Day 2 of InsureTech Connect2017

But, as excitement and buzz steadily mount, at least one panelreminded attendees that insurance — while highly ripe forinnovation— is also a highly regulated industry. The panel, titled“Balancing Innovation and Regulation,” featured Michael Consedine(CEO of the National Association of Insurance Commissioners), TedNickel (Insurance Commissioner of Wisconsin), and Chris Cheatham(CEO of Risk Genius).

Here are our key takeaways of that panel discussion.

Consumers demand drives policy

Over the past 200 years, the insurance industry has gone throughperiodic changes. But, as Mr. Consedine explained, this is thefirst time that significant changes are being driven by consumer demand.Specifically, consumers are demanding simpler and more intuitivepolicies; a streamlined and digital application process; fasterclaims payments; mobile access; and new products, such aspeer-to-peer or pay-as-you-go.

Insurance regulators nationwide realize that innovation willlead to consumers being better served, and, as a result, they aretaking an active role in being a part of the conversation andenabling innovation.

Related: 4 innovation gateways for the insuranceindustry

Being aware of regulatory 'traps'

Once a company begins to analyze risk or price products, it runsthe risk of being considered an insurance company and, moreimportantly, being subject to a host of often complex regulationsthat vary from state to state.

For instance, while the amount and quality of available data areexploding — opening up the possibility of using new orunconventional data to price risk — state laws prohibit not onlyunfair discrimination generally, but also specific factors frombeing considered when pricing risk. In other words, as Mr. Nickelexplained, a data set may show that there are more pool deaths inyears when a Nicholas Cage movie is released, but whether thatcorrelation is actuarially sound, let alone a fair basis on whichto make pricing or rate decisions, is something that companiesshould discuss with regulators before launching.

The same is true with respect to other issues such as privacy orcybersecurity regulations: Companies should understand theregulatory regime in which they operate, and ensure that they arein compliance. To that end, Mr. Nickel encouraged companies toengage regulators from the outset to explain how a new algorithm orbusiness model works to ensure that they are not running afoul ofstate regulations.

A note for brokers

Brokers be aware of anti-rebate and anti-inducementlaws.

Nearly every state (with the notable exception of California)has some form of anti-rebate or anti-inducement laws on the books.Generally, these laws prevent a broker from providing something ofvalue to a customer to “induce” an insurance purchase. Whilepromotional items such as golf balls and pens are often exempt fromsuch laws, a company must be especially careful when it begins tooffer — at no charge — more valuable goods or services to itscustomers. According to Mr. Nickel, these laws might beparticularly problematic for new entrants into the industry. Forexample, if a broker provides a wearable device to its customers,might such a gift implicate anti-rebate laws? What about specialized software providedat no charge?

Related: Wearable technology & discoverabledata

New companies in the broker space should ask themselves thesesorts of questions sooner rather than later, seeking out counselwhen necessary to avoid regulatory issues down the road.

Shawn Hanson is a partner in Akin Gump's litigation practicein San Francisco. He focuses on commercial, false claims andregulatory litigation involving health care and life and healthinsurance. He can be reached by sending email to [email protected].

Nicholas J. Gregory is a member of the firm's litigationpractice who focuses on insurance fraud, consumer class actionmatters, insurance regulatory issues, and insurance technology. Hecan be reached by sending email to [email protected].

This article first published as an Akin Gumpnews alert, and is reproduced with the firm's permission. Theopinions expressed here are the writers' own.

See also:

CallVU study: Today's consumers prefer digitalcustomer service

9 consumer-friendly auto insuranceinnovations

A closer look at the online insurance consumer[infographic]