Three days before the inauguration of President Donald Trump last week, a panel of experts on insurance regulation predicted that state and federal regulators of the financial services sector would refocus their efforts in the year ahead.
Changes at the state level, within state insurance departments, will not a direct result of the new administration coming into power in Washington; instead, they will be spearheaded by one of the panelists, Ted Nickel, Wisconsin commissioner of insurance and president of the National Association Insurance Commissioners, who promised to open a path to innovation in the insurance industry that might otherwise be blocked by existing rules and unyielding regulators.
“My concern is that the innovation side is going to run smack dab into the wall of the regulatory framework,” he said, during a session of the Property/Casualty Insurance Joint Industry Forum last week. Nickel vowed to educate roughly a dozen new commissioners who are coming on board about the ideas that insurers are bring to his office about data and analytics and emerging technologies, and to work to convince incumbent commissioners to ease up on their by-the-book stances on these ideas.
Nickel’s remarks came after Panel Moderator Chuck Chamness, president and chief executive officer of the National Association of Mutual Insurance Companies, teed up a question about technologies and disrupters likely to impact the P/C insurance industry. While technologies like driverless cars and insurtech disrupters were a hot topic at the forum, impending disruption from the Trump administration was the more popular talking point of the day. And on that score, Nickel and others welcomed possible changes to Dodd–Frank Wall Street Reform and Consumer Protection Act, particularly those that might weaken the power of the Financial Stability Oversight Council to designate insurers as systemically important.
As for technological disruption, Ian Adams, a senior fellow from the R Street Institute, a free market think tank, singled out autonomous vehicles as the technology most likely to impact the P/C insurance industry in the next two-to-four years, basing his assessment on information he took in at the Consumer Electronics Show in Las Vegas in January. “I do get the sense that these vehicles will start to appear on the timeline that a number of these companies are talking about—2020, 2021,” he said, distinguishing fully autonomous vehicles (no driver, no steering wheel) from the sophisticated systems that already on vehicles today, including stability control and lane-keeping assist features.
“For the insurance industry, there are going to be some fairly major impacts, particularly when it comes to underwriting and understanding what will need to be taken into account moving forward,” Adams warned. He noted, for example, that carriers writing auto insurance policies in California today are required “to take a driver’s experience, first and foremost, into account.
“With an autonomous vehicle, that might not be the best indicator of the risk of operating that vehicle. That’s something that’s going to need to be reexamined,” he said.
Adams also said questions about data sharing between original equipment manufacturers and insurers are starting to emerge. “Auto manufacturers have their own standards, [and] the insurance industry is going to have to come into dialogue with them sooner rather than later,” he said, noting that the NAIC and the National Conference of Insurance Legislators are already thinking about data-sharing rules.
Nickel reported that the NAIC established a big data working group under its market regulation committee last year but the plan is to move it to a new innovation and technology committee. “We want to move it away from stigma of it being a market regulation—then people get the wrong idea—and move it to an area where we can embrace a lot of the change going on that’s occurring out there,” he said. “So many [insurance] companies are trying to leverage and harness big data, using analytics to improve the customer experience. And that’s great. They should,” he said, noting, however, that education is required to help regulators move forward with insurers as well.
“One of my goals for 2017 is to really dial it in and dig down, continuing to spend more time on big data and the analytics and the innovation area in terms of getting my fellow regulators comfortable with what’s going on out there. You can come to my department and talk to me. I get what you all are trying to do, and we have good conversations. There are others that are just reflexively concerned, maybe just because of lack of knowledge.”
Nickel said he’s also committed to prodding existing commissioners to be “a little bit more flexible on the existing regulatory framework.”
“So much of what is going on right now does not fit nicely in our traditional regulatory framework, our toolbox. And that’s what also makes regulators cringe a little bit. It makes it much easier to say no to great ideas. Well, we can’t do that because it says right here.”
Nickel continued: “My concern is that there’s not going to be ultimately as much development and innovation [in insurance] as there could be if we had a regulatory framework—and regulators–who were more comfortable with understanding the change that is going on.
“There are so many great things going on out there. But it’s got to start at the regulatory level to catch up with what many of you and your companies here in the audience here are doing,” he told insurance executives.
Insurance executives taking part in some recent industry surveys seem to agree with the commissioner that regulators are blocking their path to innovation.
- Forty-two percent of 200 senior insurance executives participating in a 2016 survey by Willis Towers Watson and Mergermarkets cited the “complex regulatory requirements” as the most important barrier to digital adoption in the insurance sector to date. (Related CM article here. Report titled, “New horizons: How diverse growth strategies can advance digitalization in the insurance industry.”)
- A survey of 41 CEOs of large insurance companies conducted by KPMG in November revealed as these CEO seek to transform their businesses, the main obstacle they see in their way is cyber risk (52 percent), but “regulatory risk” followed close behind (46 percent).
KPMG’s report on the survey titled, “Embrace Change in Changing Times: 2016 insurance CEO outlook,” also notes that 93 percent of insurers (P/C and life) say they worry that regulations will inhibit their growth; 90 percent indicated that innovation is on their personal agenda, and 66 percent believe that it is very important to foster a culture of innovation.
Executives speaking at a later session of the III P/C forum said while they welcome the forthcoming flexibility that Nickel spoke about, they believe internal issues for individual companies are bigger hurdles on the path to innovation.
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