Global insurance regulators are hopefully paying attention to the fizzling noise coming out of Washington, D.C. It’s the sound of the centerpiece of the President’s signature healthcare law failing to properly launch.
As with any failure though, there are lessons to be learned for the regulatory “engineers” currently toiling away on another ambitious project, the International Association of Insurance Supervisors’ (“IAIS”) Common Framework for the Supervision of Internationally Active Insurance Groups (“ComFrame”). While they differ in their ultimate objectives and sector focus, both the Affordable Care Act (“ACA”) and ComFrame are centered on a common political design of driving enhanced government regulation through centralized and uniform regulatory structures.
The ACA and ComFrame share laudable and ambitious objectives, but concerns exist on whether their design and implementation will truly advance those goals. What occurred with the Federally Facilitated Marketplace’s launch this October carries with it a multitude of political and technical lessons learned for state, national and international insurance regulators looking to implement new global solvency regimes. Here are just three simple, practical takeaways:
1. Testing is critical.
It’s clear at this point that one of the principal causes of the FFM’s launch issues was that there was inadequate testing done and that HHS representatives pushed forward with the FFM’s Oct. 1 “go live” date even though they knew that major problems existed. Any PR benefits from meeting the Oct. 1 deadline were wiped away by the frustration experienced by millions of Americans when they attempted to use the non-functioning website.
Recently the IAIS has rolled out its own plan for field testing elements of ComFrame. However, there are suggestions that field testing should be abbreviated and pre-conceived notions on what outcomes are likely. Those are mistakes. We must allow for sufficient “beta testing” in real-world operational and regulatory environments and be prepared to make extensive changes if necessary.
2. Keep it simple.
According to recent articles, the 500 million lines of computer code written for the Obamacare software are about five times longer than the average major bank’s operating code. That complexity is turning out to be another fatal flaw for the FFM. Consumers are being turned off by the layers of log-in, account creation, account verification, and eligibility hoops they must jump through.
The FFM cannot be all things to all people. Likewise, ComFrame should not try to be all things to global insurance regulation. The recent slimming down of the ComFrame document and discussion of focusing on basic capital requirements are encouraging signs.
3. Flexibility is crucial.
While the federal FFM has been a debacle, state versions of health insurance marketplaces, where they were plausibly created and tested, have had more success although in all cases concerns continue to exist about the affordability of the products being offered.
The reason states achieved greater lift-off was that they had experts at the local level who had the flexibility to design their sites in ways tailored to the unique demographic and legal environments in that state.
The IAIS has said that ComFrame will also employ an outcomes-based approach that takes into account local legal and cultural variances. True flexibility will be critical. As the FFM has clearly demonstrated, a one-size-fits-all, centralized system is prone to mission failure in a diverse global environment.