Insurers’ New Strategies to Improve Regulatory Compliance
Earnix Team
December 12, 2024
- Governance and Compliance
- IT
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Regulatory compliance continues to be a real challenge – and a top priority – for insurers around the globe.
As part of the research process behind the Earnix 2024 Industry Trends report, we designed the survey to uncover executives’ thoughts on the topic of regulatory compliance, and what factors might be motivating their compliance strategies.
One finding really stood out: 70% of insurers reported that they will spend more time on regulatory compliance next year as compared to this year. This is the second year in a row that insurance executives told us that they planned to spend more time on regulatory compliance (67% of respondents made the same claim in 2023).
This trend raised two important questions: What might be driving this focus, and what could be standing in insurers’ way?
As we dug a little deeper, we learned that previous fines, evolving regulations, and the implementation of new technology were all contributing factors. From the research:
Nearly half of respondents (49%) told us their company was fined or had to issue refunds in the last year because of compliance-related errors.
“Dealing with changing regulations” was named as the most difficult operational challenge to fix or improve – ahead of other likely topics such as cybersecurity, improving the customer experience, and keeping pace with competitors’ innovations.
Nearly 75% of respondents said they have started using new tools or technologies to assist with regulatory compliance within the past two years.
These findings highlight an underlying trend: As regulatory demands intensify, insurers are beginning to turn to new technologies to mitigate risk, yet many still struggle to keep pace with the speed and scope of change.
Why Is Regulatory Compliance So Hard?
The insurance industry operates in a landscape of ever-tightening regulatory scrutiny, with governments and regulatory bodies introducing increasingly complex frameworks to protect consumers, manage risk, and ensure transparency.
These include examples such as the EU’s Solvency II Directive and new updates to the U.S. National Association of Insurance Commissioners’ (NAIC), which now require more rigorous risk assessments and reporting standards. In regions such as Asia and Australia, new guidelines also call for more strict reporting as well as higher capital reserves and more comprehensive risk management strategies.
Clearly, the regulatory compliance burden is growing – and legacy systems are often blockers to insurers meeting their compliance obligations.
Legacy Systems: A Barrier to Regulatory Compliance
Today, many insurers still rely on outdated, siloed systems that struggle to meet modern compliance demands. These systems tend to lack the agility needed to extract the data to comply with evolving regulatory requirements efficiently and lead to too many interdepartmental handoffs or other time-consuming, error-prone manual workarounds.
As referenced above, another finding in our Industry Trends report is that 49% of respondents told us that their company had to pay fines or issue refunds. This finding corroborates anecdotal conversations we’ve had with insurers over the years before they’ve implemented a modern system. In the example of too many siloed systems, insurers may produce their rates from a standalone pricing system but then need to manually recode this information into a production rating engine and produce regulatory documentation.
This process inevitably leads to too many errors that can lead to fines and refunds. In the U.S., the potential for mistakes that result in large expenses can be especially high, especially where insurers need to file regulatory reporting preparations for rate changes across multiple lines of business in multiple states.
To meet these growing demands, insurers must continue to prioritize their technology modernization efforts. Implementing integrated, scalable systems consisting of end-to-end rating, pricing, underwriting, advanced analytics, and other capabilities will reduce the need for manual interventions and streamline compliance processes.
Modern technology platforms can offer additional advantages such as advanced analytics and automation that help insurers maintain more accurate records, generate detailed reports for audits, and quickly adapt to new compliance requirements.
The Regulatory Compliance Opportunity Ahead
Compliance isn’t just a regulatory requirement. Insurance companies that embrace modern technology stand to optimize capital deployment and reserving strategies, thanks to more effective pricing and underwriting practices that contribute to better risk management and overall exposure. Insurers can also improve efficiency, avoid costly fines and penalties, and enhance their reputation with customers, agents and other key stakeholders across the insurance ecosystem.
This means that modernizing systems to meet ever-changing regulatory compliance requirements doesn’t have to be seen as a defensive strategy. Instead, it can be a real opportunity for insurers to build resilience, foster innovation, and gain a competitive advantage in a quickly evolving marketplace.
Additional Findings and Insights
To learn more about insurers’ perceptions related to regulatory compliance and many other insurance trends, download the Earnix 2024 Industry Trends report today.
