By: Murray Raisbeck, Partner and Global Co-lead Fintech, KPMG in the UK, and Paul Brenchley, Director, KPMG in Singapore
In the face of new competition, rapidly evolving business models, and the proliferation of innovative technologies, change is becoming the status quo for insurance companies. While insurers recognize they have an imperative to innovate, they are often stymied by the need to address ongoing regulatory challenges and associated compliance costs. This however is starting to change, as insurers look at new technologies for all areas of their business, including meeting regulatory requirements.
As such, insurance companies are now considering regulatory technology (Regtech) to help meet compliance requirements in a more streamlined manner. For example, virtual agent technology could have the capability to deliver more compliant sales or advice across a pool of financial advisers and deliver a better customer experience at lower cost.
Regtech is getting traction within the insurance sector because of the confluence of a number of factors: regulation is evolving at pace around the world; insurers are getting better at harnessing data within their organisations; and, insurers are trying to re-establish trust with customers by offering a better customer experience. Regtech firms are seeing this as an opportunity to be part of the solution to those key challenges for the sector.
The reality is that many Regtech solutions are versatile. They are well positioned to assist insurance companies with improving their regulatory compliance, while also enabling other components of business transformation to help them achieve long term success.
Making the most of business data
One area where Regtech is well positioned to help insurers achieve broader strategic outcomes is data analytics. Instead of a “big data” mindset, Regtech promotes “smart data.” By using new technologies such as cognitive computing and machine learning, Regtech solutions can more effectively structure and find meaningful patterns in the copious data available within insurance companies. This means that insurers can gain better insights into their regulatory practices, automate complex reporting, conduct meaningful analyses of critical compliance risk areas, and create an end-to-end view of compliance and reporting.
The benefits of smart data reach far beyond regulatory compliance. Harnessing data effectively is one of the top strategic priorities for most insurance companies. In drawing up the business case for implementing enterprise wide data programmes the case is strengthened if one of the benefits is improved and less costly compliance. If regulatory compliance is considered as the genesis of transformation programmes it will help embed regulation in the business, and should improve the overall outcomes of transformation. Early identification of the regulatory issues that need to be solved as part of an enterprise wide transformation programme will focus the identification of the right Regtech solutions for the business.
Enabling greater analytics and compliance
Recordsure: Automates the assessment of a conversation and identifies potential compliance risks while also providing meaningful data for stronger customer analytics. With technologies like this, insurers can analyze up to 100% of customer calls, rather than the 1-5% of calls typically analyzed by human-only compliance programs.
Intelledox: Enables compliance process automation across the regulatory value chain to provide end-to-end conformity and consistency with controls.
Artificial Intelligence Data Analytics (AIDA): Big data analytics looks for patterns to identify claims fraud
Leveraging Regtech to enable business innovation
Regtech firms and insurance companies alike are focused on finding ways to leverage innovative technologies to solve regulatory challenges, and to address areas such as regulatory compliance transformation, automation of complex reporting, and risk monitoring and analytics.
However, the implications and benefits of Regtech stretch well beyond regulatory applications. For example, many insurance companies are struggling with managing and financing legacy system transformation – a critical element of long term growth and sustainability. But oftentimes the same solutions that can help address regulatory issues can also be used to support back-office transformation. Thus, the costs associated with the implementation and use of Regtech should not be evaluated simply by regulatory time/cost savings and risk reduction, but also by the other benefits that can be achieved. A few key impact areas might include:
— Enhancing the customer experience.
Regtech can help enhance the customer experience across a number of fronts. For example, Smart KYC is an AML/KYC name screening solution that uses Natural Language Processing to help deliver more effective, real-time customer service interactions. Smart KYC can quickly digest any available data, de-duplicate identical hits from various databases, and cluster responses. This can help insurers improve screening results, provide more efficient services and reduce customer wait times. At the same time, these and other technologies can assist insurers with fraud prevention and detection, compliance with consumer protection laws, and anti-money laundering. As well, they assist with name screening before an agent or IFA approaches a prospect so as not to delay the customer experience, or disappoint them.
— Reducing headcount spend.
Through automation of key functions, insurers can not only improve compliance through the reduction of manual errors, but also reduce compliance-related headcount spend. Companies can then reallocate compliance resources – or use fewer, more highly skilled resources to analyze and use critical judgment to assess the outputs of machine reporting.
— Reducing reliance on third-party service providers.
Automation of customer service and back-office processes to address customer needs can, in turn, further address risk by reducing reliance on low-cost outsourced service providers. This means that, in addition to delivering a more consistent, on-brand customer experience, insurance companies can manage and reduce security risks and vulnerabilities stemming from use of third-party services.
— Transforming labor strategies.
Use of digital labor solutions to onshore functions allows for significant transformation in enterprise labor strategies, which can not only potentially reduce sourcing costs but also mitigate sourcing risks. For example, global firms impacted by the UK’s Brexit vote might leverage digital labor solutions to provide relief to more restrictive passporting rights, while US firms might use these solutions to enable rapid implementation of components of the new administration’s proposed corporate income tax reform. Companies in Asia are looking to onshore activities and then automate them through digital labor.
— Keeping up to speed with regulatory change with AI.
Monitoring, understanding, applying and implementing the increasing number of regulations that apply to insurance companies around the world is becoming increasingly challenging. There are a number of Regtech solutions that are using AI to fulfil that activity as the scale of new regulations being published is outstripping humans capability to keep up to speed with it all. The AI solutions digest new regulation, identify whether it is applicable for a specific insurers products or services, and then identify any regulatory gaps that exist in current practice.
Taking next steps
As with the integration of any technology, care and foresight is required for insurance companies to determine their optimal path forward with respect to Regtech. As a starting point, insurance companies should consider the following activities:
- Assess current state.
Review the legacy, current and emerging technologies being used or proposed across an organization, and define any limitations.Give special attention to critical interdependencies across the different aspects of enterprise data management (see Figure 1).
Figure 1: Enterprise data management
- Understand your options.
Insurers have the option to build, buy, or partner with an external Regtech or fintech provider in order to meet specified needs. Existing partnerships can be beneficial, but be sure not to limit options early on. Also be aware of the rapidly changing pace of the market — new options are emerging all the time.
- Look for immediate wins.
Many Regtech solutions can be quickly implemented and integrated into current systems. This provides the power to swiftly target specific challenges, whether in an end-to-end process or at identified points in the value chain.
- Assess and address additional risk factors.
Any process transformation — especially one that involves technology — can open the door to unintended risks or exacerbate existing points of weakness. As such, insurers must not only review risk factors such as data- and cyber-security measures and algorithmic biases, but also assess risks associated with the change process itself. Insurance companies should embed risk and compliance frameworks upfront in the design phase of Regtech initiatives, and revisit their effectiveness throughout the program life cycle.
The benefits that Regtech offers insurance companies are clear: not only can these technologies help streamline, simplify and optimize the business processes required to meet regulatory standards and reduce associated costs, but they can also provide critical support for business growth, improve customer service delivery, and help accelerate speed to market. As a result, insurance companies that embrace these technologies now may be uniquely positioned to gain competitive advantage in the years to come.
A version of this article will appear in the June edition of KPMG International’s Frontiers in Finance magazine with a focus on Regtech across financial services.