Insurance Regulatory Outlook (US) – Deloitte Report by Steve Foster
Article Synopsis :
2017 marks nearly a decade since the circumstances surrounding the financial crisis began, and many of the problems the industry has faced over this period are now starting to look more structural than cyclical. Despite a view in some quarters that the “regulatory pendulum” has swung too far, the regulations implemented to date are unlikely to be materially watered down—at least not soon.
To help insurers understand the present regulatory environment and anticipate coming change, we have Deloitte’s “Insurance Regulatory Outlook 2017.”
This is a comprehensive report, summarized as follows:
- Multiple regulatory influences
Multiple regulatory influences at the state, federal and international levels continue to present challenges, however much governments at all levels work to minimize uncertainty. Changing regulations on capital requirements will drive compliance costs northward, prompting insurers to pursue new growth strategies.
- The evolution of Own Risk Solvency Assessment (ORSA)
ORSA is a state-based regime requiring insurers to file details of their risk profile and the processes in place to handle same. Insurers may see this as a useful repository to understand weaknesses and convert them into strengths.
- Department of Labor (DOL) fiduciary standards: Conflicts of interest in retirement accounts
The main focus here is on training curriculum and delivery to agents, registered representatives, investment advisers, supervisory principals, and other fiduciaries. Some of the onus will fall on IT teams to build frameworks supporting compliance and administrative systems supporting DOL requirements.
- Cyber technology
Cybersecurity, big data and privacy remain the biggest issues facing the industry. Multiple regulatory structures add the fear of duplication and cost. Insurers must perform risk assessments and required data assessments to identify potential opportunities and challenges to ensure proper compliance.
- Acquisitions from abroad
Regulators seem more concerned about governance and capital deployment than anti-trust issues. Domestic deals are expected to happen, but at a smaller scale. Larger deals will face intense scrutiny from regulators.
- Corporate governance
Regulators demand stronger corporate governance structures with a strong management control function to ensure compliance across all regulatory regimes.
- Principle-based reserving (PBR)
PBR is meant to address complex life insurance products amid changing regulatory dynamics. PBR has the potential to impact life insurance product and pricing strategies.
- Regulatory response to digital technology
Digital technology is a question mark for the insurance industry, creating both opportunities and risks. A strict and inflexible regulatory regime would be a huge deterrent, stifling innovative risk-taking. Insurers should adopt transformation strategies encompassing agility and cross-collaboration across the organisation.
- Market conduct
The NAIC and other state insurance regulators continue to focus on market conduct challenges such as cybersecurity, data privacy, and sales practices which burden US insurers, producers, third parties, and other service providers.
- Longevity risk charge
Longevity risk charge will continue increasing with ongoing advancements in healthcare. Insurers will have to work with regulators to build out a framework and evaluate internal capital, reserving and asset adequacy assumptions associated with longevity risks.
- Long-term care
The NAIC is discussing innovations to increase the number of asset protection products to meet growing demand in the US. Changes suggested include everything from product modifications and state and federal incentives to a reduction in regulatory restrictions. Insurers are working with NAIC to take this discussion forward.
- Form F: Potential changes to enterprise risk reporting
Form F filings provide little value to regulators. The NAIC is working to create a guidance manual to help capture relevant information on the form. Much of the risk targeted will likely be non-insurance in nature, focusing on, for example, ERM practices and structures.
- Group regulatory capital initiatives
A number of group capital initiatives are being initiated at the domestic and international levels. Insurers are fast-tracking these initiatives and studying their impact on the business to, among other things, provide useful feedback to regulators toward more flexible end-state guidelines.
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Digital Insurer's CommentsSustained low-interest rates in major markets are prompting many insurers to re-think existing (and long-standing) business models. The first step is to understand customers and their evolving needs. The second step—and not far behind the first—is to understand how new models map to existing and prospective regulatory regimes.
We believe insurers should prepare for a regulatory, economic, and political environment that’s fundamentally more constraining than it is today. A “hope for the best, plan for the worst” mindset, seeking to find new ways to innovate in tighter environments, tapping the organization’s resilience, agility, and efficiency, is the digital insurer mindset personified.
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