Super Regional Carriers Urged to Educate ‘Suspicious’ Regulators on Big Data Use

By | July 24, 2017

“We’re curious and we don’t know. When regulators don’t know what’s going on, they get suspicious.”

That was Wisconsin Insurance Commissioner Ted Nickel acknowledging that like the industry they regulate, state insurance commissioners face challenges keeping up with new technology and uses of data and that it’s in the industry’s best interests to help regulators understand what they are doing with these tools.

Nickel, who in addition to his paid job as his state’s top insurance regulator also serves as president of the National Association of Insurance Commissioners (NAIC), was speaking to a group of executives at the Super Regional Property/Casualty Insurance Company Conference in Lake Geneva, Wis. The conference, the first targeted to Super Regional insurers, was sponsored by Insurance Journal and the actuarial consulting firm Demotech.

Insurtech, autonomous vehicles, reinsurance, big data, cyber security and talent management were among the topics addressed at the conference.

Nickel’s talk made it clear that state regulators are trying to tackle some of the same issues that carrier executives are.

Fast-Pace

“The issue right now is that technology is moving so fast, you’re plugging it in, you’re building it, and you’re using it and there is this gap between what regulators understand and what’s actually going on. And that causes some concern for us and also consumer representatives,” he told the executives.

“We don’t always know what’s in your new black box of tools…and how you better rate and better underwrite…so that’s a concern to us. We’re curious and we don’t know. When regulators don’t know, they get suspicious.”

Ted Nickel

The NAIC has been working to educate members on technology and innovations happening across the country. But Nickel said regulators also need the industry’s help to become comfortable with the criteria being used in models and whether they are consistent with traditional underwriting criteria.

He encouraged carriers to meet with their regulators as often as they can and share with regulators “in a confidential way” what they are doing.

He said regulators understand the need for insurers to protect proprietary information and tools.

He also said state regulators have to work with technology innovation and data analytics companies to update and improve regulation.

Understanding technology and big data is also important for regulators to do their own jobs better. Nickel sees states using big data for market exams. He used the example of his state where he said regulators did market conduct exams to meet quotas and selected exam candidates on a random basis by, he joked, what amounted to “throwing a dart at dartboard.”

He said big data can help regulators focus on problem areas. With big data, commissioners can look at “all of the companies like dots on a map” and be able to see all that are grouped together in the middle and also identify the outliers where there may be a problem. “Let’s start discussions with the outliers, address whatever issue it is,” he suggested, adding that because his agency’s resources are limited he wants to be “focusing on potential areas of problems and not be doing things just because we have to do them because there’s a statute that says we have the authority.”

Nickel also suggested that state insurance departments share another challenge with carriers: finding talent. That’s why his department is working with his state’s technical colleges to develop insurance programs, hoping some candidates might decide to work in the regulatory arena. It’s also why the NAIC has a “centers of excellence” program to give states technical assistance in areas where they may not have qualified or sufficient staffing.

Other NAIC News

He said NAIC is close to finishing a model law on cyber breach notifications and is readying a proposal on use of big data. He urged the executives to pay attention to the latter in particular and offer feedback.

In other remarks, he indicated that while state insurance regulators are not thrilled with the covered agreement on insurance regulation that the U.S. negotiated with the European Union, they are accepting that the Trump Administration is going to sign it.

He said the NAIC “didn’t think it was the right tool” to address matters of international regulation of insurance but “it was done and it’s there.”

“It is what it is and we will live with it,” Nickel said.

NAIC is hoping that a promised statement from Treasury will clarify and recognize the primacy of state regulation.

“Then the work goes back to the states,” he noted, referring to the need to begin implementing the agreement.

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