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The Unique Challenges of Insurance Regulatory Compliance

By: Christina Rasch

The insurance industry is facing increasingly stringent compliance regulations as well as the need to adopt emerging technologies to level-up their offerings.

The emergence of new technologies and their applications within the insurance space, as well as changing regulatory requirements and consumer expectations about the privacy and security of data, are forcing insurance companies to assess their compliance and data governance programs as they scale to meet these demands.

Today’s insurers are tasked with adapting to the external demands of this shifting industry landscape while simultaneously evolving their internal operations and enhancing or replacing legacy systems, a juggling act that requires a nuanced understanding of the regulatory environment and its impact on established data governance programs. As insurers work to cut costs and grow profits by offering targeted insurance solutions to their customers — many of which are grounded in data collection and analysis — they will need to continually modernize their regulatory and compliance functions so that they are able to meet their legal and ethical obligations sustainably and cost-effectively.

That said, the complexities of compliance in the insurance industry present considerable challenges for many companies, and will continue to do so as the industry integrates more diverse product and service offerings, enhances legacy systems with new automation tools, and works to cut costs. These complexities include (but are by no means limited to):

1. Stringent Data Privacy and Security Regulations

The threat of data breaches is nothing new for insurance companies, but the stakes have been raised considerably in the wake of the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA). As a result of these (relatively) new laws, regulators are probing the ways in which companies protect and store their data with unprecedented rigor.

As insurance companies look to leverage consumer data to offer targeted solutions and implement newer technologies that automate various aspects of their operations (such as claims processing), they need to implement mechanisms to protect and manage their customers’ data.

To rise to the challenge posed by increased regulatory scrutiny, insurance companies need to craft, implement, and evolve robust privacy and security plans — not only to protect consumers (and earn their trust), but to avoid fines and other penalties assessed by regulatory bodies.

2. High Market Conduct Expectations

“Market conduct” refers to actions associated with the sale and distribution of insurance. High standards of market conduct are critical to protecting consumers and maintaining public trust in the insurance industry as a whole. By leveraging data and analytics, self-assessments, and internal audits to proactively monitor their own operations, insurance companies can avoid running into regulatory issues stemming from oversight issues or rogue agents. Findings from these assessments help insurance companies identify outliers, monitor rate compliance, and verify that products and services are being offered to customers in a fair way. This allows companies to fix any issues prior to receiving negative findings as part of a market conduct exam.

As insurance companies look to enhance their customers’ experience through automation tools that result in faster claims processing or simplified underwriting processes, they need to consider the regulatory implications of these technologies and integrate them into their monitoring and analytics processes to ensure fair application across the board.

3. The Specter of Insurance Fraud

Fraud is an ever-present threat across all types of insurance, though it’s a particularly prominent issue in auto insurance, workers’ compensation, and health insurance. Insurance fraud is perhaps most widely associated with consumers defrauding insurance companies, but insurance companies and their employees can defraud consumers as well.

From a regulatory standpoint, insurance companies must be especially wary of this kind of fraud. Employees who take unscrupulous actions such as collecting premiums from consumers without delivering a policy can place their company at risk. This potential risk has only grown in the wake of the July 2019 updates to the Model Insurance Fraud Act, which increased prosecutors’ authority and removed many previous proof standards.

However, because insurance companies are often large and complex organizations, self-policing can be difficult. As a result, companies are turning to advanced analytics to identify anomalies and potentially detect fraud before it becomes a major liability.

Partnering with an Experienced Insurance Compliance Consultancy

Because of the increasing complexity of compliance in the insurance industry, more and more insurance companies are turning to consultancies for help in ensuring regulatory compliance and detecting fraud. Maintaining day-to-day operations while also keeping up with emerging technologies and changing regulatory standards and consumer expectations requires substantial time, labor, and strategy, and partnering with an experienced consultant can minimize insurers’ cost and time expenses while also driving better results.

A boutique consulting firm that operates on a unique local model, SEI only employs consultants with extensive specialized experience, and in an industry as unique and complex as insurance, experience is critical to success.

To learn more about how partnering with SEI can help your insurance organization, contact us today.

Christina Rasch

Consultant

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