US Insurers Must Contend With Federal Overseers

Ovum publishes report about the 2013 US insurance regulatory landscape.|

August 14, 2013

Since 1851, when the first state insurance regulator was established, the US insurance industry has had to comply only with the laws of a regulatory system that is state-based. However, that changed when the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) passed into law on July 21, 2010. The Dodd-Frank Act, which is the US Federal Government's response to the 2007-2008 financial crisis, created several entities including the Federal Insurance Office (FIO) and the Financial Stability Oversight Council (FSOC). Both of these entities are authorized to be involved in the insurance regulatory system, albeit with different degrees of authority and oversight. Ovum's recently published report 2013 US Insurance Regulatory Landscape discusses the strengthening presence of the federal government in US insurance regulation, four interdependent initiatives that US insurers need to implement to comply with regulations, and the expanding role that technology can play in supporting US insurers as they prepare for regulatory compliance. Federal Presence In The US Insurance Regulatory System Has Strengthened State-based insurance regulators can be forgiven for believing that the regulatory system they have in place, and are continually reshaping to align with market realities, has continued to prove worthy to both consumers and insurance companies. Be that as it may, the Dodd-Frank Act is now law and the FSOC and the FIO are now active participants in the US insurance regulatory system. Both entities have authority and responsibilities that could transform the US insurance system. Only time will tell whether their existence is a net positive for insurance companies domiciled in the US and international insurers conducting business in the US. Insurers should familiarize themselves with the roles and responsibilities of the FSOC and FIO. The FSOC will identify and respond to threats to the financial stability of the US and promote market discipline. The FIO has a number of responsibilities, including: recommending to the FSOC when an insurer (and its affiliates) should be designated a "systemically important financial institution" (SIFI), thus making it subject to additional capital requirements set by the Federal Reserve; representing the US in matters relating to international insurance regulation; monitoring the extent to which traditionally underserved communities, consumers, minorities, and those of low-to-moderate income can access affordable insurance products; and assisting the Secretary of the Treasury and other officials in administering the Terrorism Risk Insurance Program. Insurers Must Implement Four Interdependent Initiatives To Enable Readiness To Comply With State And, Potentially, Federal Regulations Insurers should create and continue to strengthen four interdependent initiatives to ensure their readiness to comply with regulation, which encompass monitoring, management, analysis, and reporting.

Monitoring initiatives include monitoring and capturing: any legislative bills available for public comment; discussions from the insurance legislators in each state, the NAIC, the FIO, the FSOC, the various influencer groups, and online trade press articles and commentary concerning legislative issues impacting the insurance industry; and existing regulations and proposed and actual changes to these regulations for each state in which the company conducts and wants to conduct business.
Management initiatives include storing, cleaning, tagging, and otherwise preparing the primarily unstructured content captured above, for analysis and preliminary preparation of regulatory compliance initiatives.
Analysis initiatives include analyzing the captured content's potential impact on existing company regulatory compliance initiatives or the resources needed to create new initiatives. The analysis is likely to encompass financial analysis and modeling if the regulatory discussion impacts the amount of capital reserves the insurance company will need, or alters the investments it can make or the mix of risks it can insure. It also includes the creation of interactive dashboards that enable insurance executives and legal, compliance, and other insurance departments to track compliance with state and, where necessary, federal regulations.
Reporting initiatives include creating reports for internal insurance company use, for each state insurance commissioner's office for the states in which the company conducts business, and, where necessary, for the FIO and the FSOC.

Technology Has A Growing Role To Play In Enabling Insurers To Comply With Regulations To remain knowledgeable about what is happening, be prepared for any changes to requirements, and comply with existing regulations, insurers should use:

Text data mining/semantic technology to create a tagged and searchable repository of existing and pending regulations.
Master data management (MDM) applications to establish, maintain, and update a repository of existing and proposed industry regulations.
Analytics, including predictive analytics, to measure the company's capital adequacy and ensure it complies with state and, where necessary, FIO and FSOC requirements, and to model and project the company's current and projected density of risk (i.e. total exposure across all insurance lines of business that the insurer is selling for all or specific geographies).
Data visualization to create dashboards to track the company's alignment with regulatory deadlines and capital requirements, and its progress toward adopting insurance regulatory initiatives (e.g. uniform producer licensing).
Database technologies to create, store, and manage producer demographic, insurance experience, training, and licensing information for every insurance company producer (i.e. agent/broker/financial advisor) for each insurance line of business, for every state (or jurisdiction) in which the agent is legally authorized to sell insurance.
Collaboration and communications technologies within the insurance company, including the agent/broker/financial advisor intermediaries, to discuss progress toward regulatory compliance including concerns or problems and potential solutions if the company believes it is non-compliant on certain issues.
Reporting capabilities to create compliance reports and send them to internal insurance departments, to each state insurance commissioner's office for each state in which the company conducts business, and, where necessary, to the FIO and the FSOC.