How Insurtechs can work with Regulators to Speed Innovation
By Ryan McMahon
Originally published in Digital Insurance, 11/13/2020
Insurance regulators are charged with ensuring a well-functioning market and that consumers are protected. This balanced approach has functioned well, yielding overwhelming consumer choice and innovation within a space that is often overlooked. It is a tried-and-true trope to decry the challenges that regulation has brought to innovation within the insurance space, but in reality the market shows something completely different: new products, services and innovation is growing. This is occurring because those who seek to bring new technology and innovation into a regulated space are doing it in a collaborative way, ensuring that their innovation has an immediate positive impact on the market and rapid availability to consumers.
By working with regulators to not only introduce new products or services, but also to gain timely approval when needed, technology providers can take proactive steps to help all within the market by engaging in key discussions early. This means that as new uses for the technology evolve, that innovation is continually communicated with regulators, building a platform to enable the market to expand and adopt new technology. The key goal should be to help close the loop between innovation and utility, which is sometimes overlooked in a time of rapid technology expansion. Ultimately, innovation must be measured by the ability to get into the market and provide utility for consumers and insurers.
The National Association of Insurance Commissioners describes their mission as: “Protect[ing] the interests of the policyholder and those who rely on the insurance coverage provided to the policyholder while also facilitating the financial stability and reliability of insurance institutions for an effective and efficient marketplace for insurance products.” In other words, they are the protectors of the consumer; they are focused on ensuring the process insurers take to develop new products and set rates is accurate, fair and technically sound.
Traditionally, much of the focus of regulators in the U.S. has been on risk selection and risk pricing. As new technology brings innovative ways to analyze and assess risk, this necessitates further communication and engagement with regulators. The goal of any innovator should be to work collaboratively with regulators to surface any and all questions about new technologies in development as early as possible. Time is of the essence, because in the insurance industry, the lifecycle from product inception to roll out can be lengthy. When adding complexity from new technology, new ratemaking tools, or a new product launch that features an innovative consumer value proposition, that cycle extends even further. Understanding this, technology providers that invest the time and resources to have these discussions early can create substantial benefits for their insurer partners later on.
As many in the insurance industry know, simply having the ability to develop innovative products is only yielding part of the solution for insurers. This is where many pitches from service providers fall flat: there is still heavy lifting to be done before that product can hit the market, and by shifting that work to the insurer, the technology provider is creating uncertainty and complexity into product delivery. Missing this key step creates – as Sir Topham Hatt of “Thomas and Friends” would say – confusion and delay. In business terms, a failure of the technology provider to proactively engage regulators can add a substantial lag between when a new solution is initially thought of and when an insurer can effectively use it, if at all.
The true benefits of this kind of engagement extend far beyond the regulatory framework itself. The real dividend comes from getting as close to your customer’s business challenges and needs as possible. By working within the same regulatory framework as your customers, a technology provider can anticipate and accelerate far faster than those that are removed and only seek to profit from the sale and move on to the next customer.
Technology moves quickly, and new techniques to better understand risk, what causes it and how to improve it, are being developed at rapid speed. Taking the time to ensure that the highest standards are upheld and that there is a strong dialogue between the innovators and the regulators will continue to yield benefits for those that seek to improve their companies’ competitiveness.
Ultimately, proactive engagement with regulators could be looked at as a burden for some, but those who are focused on being partners to their customers – not vendors – look at it as an tremendous opportunity. This enables a continuous dialog, keeping technology providers connected to the key issues that insurers will encounter while working to deliver new products and services to the market. The end result of this work is innovation that is production ready, positive for consumers, and that promotes a stronger market.