Most insurance companies have been stretched far too much over a few years and especially the past year, with multiple and constantly changing regulatory requests to comply with. This has constantly remained a major compliance challenge in the insurance industry and an impediment to consistent and efficient risk management. Insurance companies are overwhelmed with the need to make several tough decisions and take actions to enhance organizational culture, technology, and processes that meet the needs of both consumers and regulators, which is getting real by the day.
Now more than ever, insurers need quality Chief Risk Officers and Heads of Compliance armed with the right technology and appropriate resources, giving clear guidance on how to safely navigate the challenges and risks ahead.
Source: PWC Insurance Risk and Compliance Benchmarking Survey
As you see in this PWC’s insurance risk and compliance benchmarking survey, 93% of the insurance respondents have reported about the regulatory changes to the risk committees. Amongst many challenges, here are the top compliance challenges in insurance they have to manage.
- The first one is the fast pace of changes in regulation. According to TRRI’s Cost of Compliance report, regulatory changes were reported as the top compliance challenge for 2020, averaging at 217 updates per day, with these updates coming from over 1,000 regulating bodies. They are expecting more regulation changes soon, possibly exceeding the already high level of changes taking place.
- The second biggest challenge in compliance is the implementation and embedding of regulatory change. There are many newer technologies coming to light, some specifically for insurance, and others are regulatory technologies. The effective implementation of these technologies and services can greatly benefit them. However, they must overcome many obstacles before the maximum potential of these implementations can be attained.
- Thirdly, the issue of unstructured data, in different forms such as email, text, spreadsheets, video, pictures, files, etc. that account for 80% or more of the overall digital data universe and is expected to grow at 55-65% every year. Regulatory records contain massive amounts of unstructured data and inconsistencies that can be harmful and may present a high risk. This large percentage of data is often overlooked and receives less attention than its structured counterpart, and therefore can lead to risk towards compliance and privacy for the client.
- Then there is the rising cyber risk. In February 2020, the European Systemic Risk Board estimated that the total cost of cyber incidents for the world economy in 2018 ranged between $45 and $654 billion. Especially now, during the coronavirus pandemic, cybersecurity is an ever-increasing concern. Now that many organizations are transitioning to a work-from-home environment and relying on VPNs and remote desktop setups, they are more susceptible to outside attacks. The threat of cyber actors infiltrating enterprise networks through malicious attacks is a very real and increasingly important challenge to security compliance.
How are these Compliance Challenges Impacting Insurance Companies?
Risk and compliance teams are forced to have a roadmap to efficiently manage risk and compliance processes and respond to heightened regulatory and consumer expectations. Their responsiveness and actions will play a crucial role in order to succeed in the product design and distribution obligations regime where the elements of the Life and General Codes of Practice are enforceable. They are required to address the consequences of these challenges at the earliest:
- Risk and compliance teams are struggling to keep up with this rapid pace of regulatory changes. They must ensure that compliance measures are interpreted and executed in an enterprise system precisely especially the new regulations.
- Maintaining compliance is not a cheap endeavor. Balancing budgets and optimizing the costs of remaining compliant are of utmost importance. Although compliance is expensive, the cost of becoming non-compliant can be as much as 3 times the price. This is a critical concern with the growing volume of regulatory change, driving demonstrable cultural change, increasing personal accountability, and the implementation and embedding of regulatory change.
- Given the diverse forms of data and volumes of data, it is critical for them to process quality data and integrate it in real-time. Integrating data and utilizing it accurately is the bedrock for effective and efficient decisions especially in compliance. Let's say for the cases like identifying and resolving breach and compliance issues in a timely manner, making appropriate decisions, and driving risk and compliance processes more effectively. This risk is likely to increase as they lose sensitive information and collect more data.
How can Insurance Companies Handle these Challenges and Stay Resilient?
Given compliance is complex with multiple regulatory considerations with demanding customer expectations and competitive pressures on top, the decisions will be as complex or more. They need to look for more efficient and productive ways to increase the efficiency of compliance, reduce its cost and minimize risks.
End-to-end decision automation will give them an advantage of not only modeling, managing, governing, and automating these complex compliance scenarios but offers a unified approach that combines the intelligence of compliance and business expertise and staying agile as the regulatory requirements change. Risk and compliance teams can –
- Automate and integrate new regulatory requirements and compliance checks into existing processes, systems, and channels
- Integrate data into workflows and production systems, in real-time and make it a part of decisions
- Get a clear explainability and traceability of decisions‘ outcomes for the regulators and comprehend the rationale behind the decision which is very helpful in ensuring audit safety and allows for transparency for the regulators
- Intervene during the decision making wherever they deem necessary
Insurance companies cannot afford to fail in managing regulatory changes as they can face vast penalties from regulators in addition to customer dissatisfaction and reputational decline. They need a system that can integrate new regulatory requirements and increase their agility to match and respond to the rapid changes – the one that can account for changes and is future-proof, the one that allows the intervention by subject matter expert, the one that gives a full picture of a decision and why it was made, the one that enables them to build optimized, situation-aware and customer-centric decisions, and the one that helps them measure the decision outcome against the business KPIs. End-to-end decision automation enables organizations to significantly alleviate the risks, time, and effort employed by traditional compliance systems.
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Last updated January 20th, 2022 at 11:08 am, Published March 11th, 2021 at 11:08 am