The Modernisation of Insurance Compliance

For far too long, compliance teams in insurance companies have struggled with executing day-to-day activities because reactive issues take up too much of their time, time that could be used toward developing forward-looking risk mitigation.

Chief compliance officers of insurance companies have felt the pressure of increasing regulatory mandates, perpetual talent squeezes, growing demand for increased cost reductions, and emerging risks and regulations that are challenging their team’s ability to succeed.

In a study, One-third of the firms surveyed said that they would spend at least an entire day each week keeping track of the changing regulations. In addition, 69% of respondents said that they expect regulators to propose additional rules in the coming year. The study also revealed that the lack of coordination between internal functions is causing firms to miss opportunities to leverage resources.

The speed and sheer breadth of regulatory change remains to be a constant challenge for firms. As the business needs to evolve and become more complex, it becomes even more difficult for compliance teams to keep up. It is critical that the compliance function changes its focus from hindsight to foresight to mitigate further risks. Compliance modernisation will impact the way the function is governed; the tools, technology, and analytics it uses; and the way it connects with other parts of the business.

The many internal and external factors that are impacting the insurance compliance model are interdependent and have overlapping impacts and implications. Thus, any changes that would occur to the traditional compliance model would require a holistic approach, where all members of the organisations are prepared for the future. The functions that will face the greatest impact from a modern compliance program are actuarial, financial, risk management, and IT. The modernisation of a compliance program in the insurance industry requires that these key functional areas work together to create a process that will be responsive to both internal and external stakeholder needs and demands.

The demands on businesses and compliance programs are more complex than ever, so doing nothing is no longer an option. Consider the following key forces that are driving the transformation:

  • Regulators are strengthening and increasing their control overall within the industry
  • Customers are looking for products that have new features and innovative services
  • Shareholders are searching for low risk investments with stable returns to protect their capital
  • Technology is reshaping the business model but exposes the company to new risks

Compliance teams have to rethink their compliance models to become proactive instead of reactive. This will require investment in technology, adoption of improved processes, and deliberate focus on what the business, risk, and operation functions can contribute to the development of more predictive insights.

Drivers for Modernising Compliance:

The pressure to make a change comes from many directions, including:

  • Internal Challenges can include a lack of executive buy-in; ineffective coordination across multiple business units; a lack of compliance strategic vision; and/or ineffective use of technology.
  • Emerging Technologies can include regulatory technology such as cognitive compliance and governance, risk, and compliance automation; and/or big data analytics such as predictive analytics, and the increased use of high-volume data to drive risk identification and process enhancement.

Regulatory Pressure can include new regulatory requirements; increased regulatory examinations and inspections; increased enforcement actions, fines and penalties; and/or heightened standards and expectations.

References here and here.

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