Tag Archives: insurance regulator

What Is Right Balance for Regulators?

As Iowa’s insurance commissioner, I meet with many innovators whose work affects the insurance industry. A major topic we discuss is the continual debate of innovation vs. regulatory oversight. This debate will be front and center during the Global Insurance Symposium in Des Moines when federal regulators, state regulators, industry leaders and leading innovators come together for discussions on the “right” way to bring innovation into the insurance industry.

I see three schools of thought in the debate:

  • Those who want nothing changed because insurance regulation has worked for more than 150 years
  • Those who suggest oversight by insurance regulators isn’t needed because innovations and market forces don’t require the same type of scrutiny that regulators have performed in the past
  • Those who feel that regulations and oversight are needed but that regulators should move quickly to keep up with emerging technological developments

Innovation is happening, and regulators realize it. No one, including regulators, can stop technological advances. Luckily, I have found that my colleagues who regulate the insurance industry desire to see innovation succeed because it will, generally, enhance the consumer experience. The focus of regulators is to enforce the laws in our states and to protect our consumers. It is that constant focus that ensures a healthy and robust market. And it is that focus that allows the market to work during an insolvency of a carrier, as Iowa witnessed recently during the liquidation of CoOportunity Health.

But wanting to work with innovators doesn’t mean insurance regulators are going to turn a blind eye to how innovations and new technologies within the industry are affecting consumers. I do not believe the fundamentals of the insurance business need to be disrupted. Innovations within an industry that is highly regulated, complex and vital to our economy and nation need to occur within the confines of our regulatory structure. Innovators who are attempting to disrupt the insurance industry outside the bounds of our regulatory structure and who are not following state regulations will likely face significant problems.

So, just as Goldilocks finally found the perfect fit at the home of the three bears, insurance regulators are working diligently to find the perfect fit of the proper regulation to protect consumers for innovations and the technology affecting the insurance industry.   Regulators want the insurance business to continue to innovate and adapt to meet customer needs and expectations. Improving the customer experience through technology, quicker underwriting and increasing efficiency adds to the value of insurance for consumers. I know many smart people are working on creative projects to do these types of things and much more.

The insurance business is arguably becoming less complex because technology simplifies and evens out that complexity. Many existing insurance companies will face challenges as data continues to be harvested and as digital opportunities become more obvious. The continuous innovation in the industry is both positive and exciting.

However, insurance carriers face incredible issues, and, therefore, the regulators who supervise these firms must clearly understand the complexity of the industry and the external factors that weigh upon the industry.

A few issues industry participants must deal with:

  • Perpetual low interest rates that make it difficult for insurers’ investment yields to match up with liabilities;
  • Catastrophic storms that may wipe out an entire year’s underwriting profit in a matter of hours;
  • Increasing technological demands within numerous legacy systems;
  • International regulators working toward capital standards that may not align with the business of insurance in the U.S.

I believe regulators, insurance carriers and innovators can work together to harmonize and streamline regulations in an effort to keep up with market demands. However, the heart of insurance regulation beats to protect consumers. Compromising on financial oversight and strong consumer protections is not up for negotiation. Ensuring companies are properly licensed and producers are trained and licensed is critical, and ensuring companies maintain a strong financial position is equally critical.

Innovators who wish to bear risk for a fee or distribute products to consumers will need to comply with insurance law. Additionally, innovators looking to launch a vertical play into the industry through a creative service, model or underwriting tool need to make sure they do not run afoul of legal rules and provisions that deal with discriminatory pricing and use of data. It is a lot to absorb for an entrepreneur, but it is not impossible, and the upside may very well be worth it.

I absolutely encourage companies looking to innovate in the insurance industry to proceed, but I urge them to do so both with the understanding of insurance law and the role of the regulator and with strong internal compliance and controls. Innovators and entrepreneurs who proceed down the right path are the most likely to have regulators excited to see them succeed.

Insurance is still a complex industry. Can and should it be made simpler? Yes. I believe that, through innovation and continued digital evolution, it will. Should the industry focus on how to continue to enhance consumer experience and put the consumer in the center of everything? Yes, and I know that is occurring within many new ideas and businesses that are beginning and evolving.

Insurance, at its core, is a business of promises. It is an industry that has passed the test of time, and I believe, through innovation and continual improvement, it will remain strong and vibrant for the next 100 years.

If you are an innovator or entrepreneur and are looking for a program to learn about how to address insurance regulatory issues within your business as well as the role of a state insurance regulator, I would again encourage you to attend our 3rd Global Insurance Symposium in Des Moines, Iowa. This is the first conference where innovation and regulatory issues truly converge. This is your opportunity to learn from state insurance regulators, the Federal Reserve, the U.S. Department of Commerce, seasoned insurance executives, start-up entrepreneurs (the second class of the Global Insurance Accelerator will have a demo day for the 2016 class), venture capital investors and leading innovative thought leaders. No other meeting has assembled a group like this.

Everyone will benefit from the unique learning experiences, and, more importantly, relationships will emerge. Register here today!

zenefits

Zenefits Compliance Saga Takes a Turn

Things happen fast in the start-up world.

Early yesterday, I wrote a post on how Zenefits’ compliance challenges in Washington state could cost the company millions of dollars in lost commissions. While noting that it was only a matter of time before someone at Zenefits lost his job over the situation, I had no idea that Zenefits CEO Parker Conrad would resign later in the day, citing the compliance problems.

In a press release cited by VentureBeat.com announcing Conrad’s departure, Zenefits’ new CEO, David Sacks, who had been COO, declared, ”I believe that Zenefits has a great future ahead, but only if we do the right things. We sell insurance in a highly regulated industry. In order to do that, we must be properly licensed. For us, compliance is like oxygen. Without it, we die. The fact is that many of our internal processes, controls and actions around compliance have been inadequate, and some decisions have just been plain wrong. As a result, Parker has resigned.” (The entire press release is worth reading).

The loss of a founder and CEO is another cost Zenefits will pay for the alleged failure to comply with states’ insurance laws. I don’t believe they’re done paying for their mistake, however.

What follows is a slightly edited version of my earlier article:

Washington regulators are investigating Zenefits’ alleged use of unlicensed agents selling insurance policies in the state. This is not only embarrassing for a company as brash and boastful as Zenefits, but the company’s finances could be substantially affected, too. Not just because, if found guilty of this felony, Zenefits could face a multimillion-dollar fine. The far greater risk to Zenefits is the prospect of losing commission income — a lot of it.

William Alden at BuzzFeed News has done a great job pursuing the story of Zenefits’ unlicensed sales. Now Alden is reporting that, based on public records, it seems “83% of the insurance policies sold or serviced by the company through August 2015 were peddled by employees without necessary state licenses….”

The potential fallout is quite substantial even though only a small number of sales are involved — just 110 policies out of 132 sold or serviced by Zenefits in Washington between November 2013 and August 2015. “Soft dollar” costs include a damaged brand because of the bad press, distractions at all levels of the company and the need to address whether the company is ignoring other consumer protections.

Then there are the hard costs. 110 policies times the maximum $25,000 per violation that Washington can impose means fines of as much as $2.8 million. Financial penalties imposed by other states could add to this figure. While paying a $2.8 million fine is no laughing matter for a company losing money every month, this represents less than 0.5% of what Zenefits has raised from investors. However, the legal fines are, potentially, just the tip of the proverbial iceberg. As Alden points out, the fallout from this investigation could result in carriers dumping Zenefits, and that could cost the company far more than any criminal fines.

Carriers require agents to meet several requirements before contracting with them, and agents must continue to meet these requirements to keep the agreement in-force. Common provisions include being appropriately licensed, maintaining adequate errors and omissions coverage and not committing felonies or breaching fiduciary responsibilities. Fail to meet any of these requirements, and agents can find their contract terminated for cause.

Terminations for cause usually allow insurance companies to withhold future commissions from the agent and, depending on the specific terms of the contract, from the agent’s agency, as well. If an agency or agent knows or should have known he was in violation of contract terms when executing the agreement, carriers may be able to rescind the contract and demand repayment of commissions.

Being found guilty of a felony in Washington state could allow a carrier — any carrier, anywhere in the country — to terminate Zenefits’ agent contract for cause. Late last year, Zenefits CEO Conrad claimed the company was on track to earn $80 million in 2015. So, let’s see, millions times 50% … carry the one … yeah, this hurts. A lot.

A nuclear outcome is highly unlikely. The Washington state investigation into Zenefits is continuing, and Zenefits, to date, has been found guilty of nothing.

Even if Washington regulators find Zenefits committed a felony, for reasons described in a previous post, the outcome is highly unlikely to be a fatal blow to the company. Insurance regulators have considerable leeway in determining fines and penalties. Absent proof that Zenefits intentionally violated state law or that consumers experienced actual harm, the Washington State Department of Insurance is likely to conclude that this situation resulted from incompetence. The department might then impose a modest fine on Zenefits and subject the company to enhanced review of its licensing practices for a few years.

Let’s put this in perspective. Richard Nixon resigned the presidency as a result of what started off as a two-bit break-in. That kind of cascading escalation is extremely rare. What we’re seeing unfold in Washington state is probably not Zenefits’ Watergate moment.

Zenefits has already paid a small price for what it allegedly did. I’m guessing the whole mess has been a bit distracting to management. And the fact remains: Mishandling more than 80% of sales in a state is a sign of immense ineptitude, arrogance or both. Having this reality aired publicly is not good for Zenefits’ brand, and resources will need to be expended to make sure it doesn’t happen again. I’m not aware the company has fired anyone as a direct result of the lax licensing controls, but that could happen.

As a result of this fiasco, Zenefits has already taken down its controversial broker comparison pages in which the company used carefully selected criteria to compare itself to community-based agents. (I guess the company was reluctant to add “being investigated for multiple felonies” as one of the comparison points). This is a small sacrifice as the comparison page was likely an attempt to enhance search engine optimization rather than an effort to take business from the competition.

Zenefits has paid a small price. The open question is: How large a price will the company ultimately pay?

A Commissioner’s View of Innovation

There’s a thundering herd running through Iowa this year — and not just the herd of presidential candidates. There also is a herd of technological innovators driving considerable change in insurance.

Many people find it intriguing that technology innovators are coming through Iowa, but Iowa is an insurance state and home to some of the largest insurance companies in the U.S. Iowa also is home to niche companies that price out very specific risks to targeted markets.

In my role as Iowa’s insurance commissioner, I’ve met with many entrepreneurs whose ideas will improve, enhance and create value for insurance companies and consumers. In these meetings, I hear a fairly consistent and constant theme: State insurance regulators are a major burden for entrepreneurs and, in turn, for their ideas for innovation.

However, when I walk them through what regulators do and provide them a copy of the Iowa insurance statutes and regulations that empower my office, I’ve found that most haven’t read even one word of insurance law before working on an idea or creating a product or service.

To be clear, I don’t believe I stand in the way of innovation. On the contrary, I am very supportive of innovation.

But my fellow regulators and I do have an important job — consumer protection. Insurance is one of the most regulated industries in the nation because, for the insurance system to work, when things go wrong and a consumer needs to make an insurance claim the funds to pay the claim must be available.

The days on which people file insurance claims may be the worst days in their lives, and they may be very vulnerable. Perhaps a loved one passed away; a home is destroyed; an emergency room visit or major surgery is needed; someone may be entering a long-term care facility; a car is totaled; or injuries are preventing a return to work. Insurance is a product we buy but really hope we never use. However, when we need to use it, we want the company to have the financial resources to pay the claim. It’s our job as regulators to make sure the companies in our states are financially strong enough to pay claims in a timely fashion.

Insurance is regulated at the state and territorial level by 56 commissioners, superintendents or directors. The state-based regulatory system has served consumers well for more than 150 years and demonstrated extreme resilience in the last financial crisis. My fellow commissioners and I are public officials either elected or appointed to our respective posts. We are responsible and accessible to the citizens of our states or territories.

However, I do understand that complying with the laws of all the states, District of Columbia and territories poses challenges to entrepreneurs. In recognition of this, state regulators have worked together to help minimize differences between states through the National Association of Insurance Commissioners, thereby creating a more nationally uniform framework of insurance regulation while recognizing local markets and maintaining power in the hands of the states.

The job of an insurance regulator sounds easy. We exist to enforce the state’s laws, to make sure that companies and agents follow that law and to ensure that companies domiciled in our state are in financial position to pay claims when required. As with many things, the duties of regulators are more difficult than they appear. Regulators need to have great knowledge of multiple lines of insurance, technological advances, financial matters and marketing practices. In reality, the execution of our job duties in enforcing our state’s laws may at times cause friction with some innovative ideas.

As I stated, I don’t believe that I or my fellow regulators stand in the way of innovation. I believe that a robust and competitive market that delivers value to the consumer is one of the best forms of consumer protection. However, our insurance laws are also designed to make sure that insurance companies stay in the market and keep the promises that they have made to their customers when the products were originally sold.

In executing my duties as commissioner, I pay a great deal of attention to innovation and developments. I personally spend time with entrepreneurs, investors and others to learn about new trends and ideas. My commitment to enforcing state laws, combined with the laser focus on protecting consumers, requires keeping abreast of innovation.

My office addresses more than 6,000 consumers’ inquiries and complaints every year. People on my staff address issues quickly and care deeply about their roles in helping Iowans. I’ve learned in my nearly three years as commissioner that many consumers don’t understand the insurance they own. They may have relied on an agent, or purchased insurance coverage on their own, hoping it will suit their needs. However, when life happens and an insurance claim needs to be made, consumers may discover the coverage they purchased did not suit their needs. For instance, some people may discover their health plan network doesn’t have healthcare providers near their home. Others may discover too late that certain items lost in a fire were not covered under their homeowners’ policy. Some consumers may discover that the very complex product that they bought simply did not measure up to their expectations.

Having consumers be comfortable with making a purchase and not understanding what they purchased is a culture we need to change. Some consumers desire to simply establish a relationship with an insurance agent or securities agent they feel they can trust, schedule automatic withdrawals from their bank account to be invested or submit their premiums for their insurance products as required so they can ultimately focus their attention on all the other activities that occupy our busy lives. In essence, they forget that they purchased the coverage, and, while it may have been the right purchase at that time, it may not fully suit their needs now or when they need to file a claim.

Insurance regulators and the insurance industry need to encourage consumers to learn more about their coverage needs and the insurance they actually purchase. Innovation that leads to personalizing insurance and better consumer understanding is a good thing. Innovation that increases speed-to-market, enables better policyholder relations through in-force management and provides more value to the consumer is a good thing. However, all that innovation must comply with our state’s laws.

To that end, I’ve met with several entrepreneurs to highlight issues that would arise with certain proposed business models. I enjoy discussing ideas about our industry and sharing Iowa’s perspective. Innovation can help consumers, and it’s my hope that entrepreneurs continue to work with regulators to develop new products and services. This collaboration helps both the regulators and the entrepreneurs and has led to some very positive and healthy dialogue in Iowa.

Debunking ‘Opt-Out’ Myths (Part 1)

Those who believe in the current workers’ compensation system share objectives with those who believe that companies should have the ability to “opt out.” We all want quality care for injured workers, better medical outcomes, fewer disputes, a fair profit for insurance companies and the lowest possible costs to employers. However, supporters of “options” to workers’ compensation object to a one-size-fits-all approach to achieving these objectives. They want to be able to either subscribe to the current workers’ comp system or provide coverage to workers through other means.

The Texas nonsubscriber option has proven beneficial for injured workers, employers and insurance carriers for more than 20 years. The Oklahoma Option has been in effect for one year and is delivering promised results for injured workers and employers, including lower workers’ compensation costs. Legislation to provide for options in Tennessee and South Carolina was introduced earlier this year.

New laws need to be studied carefully. They take time to develop, understand and implement. Injury claims also take time to properly process and evaluate. That is part of the challenge. It takes time to develop the facts of every claim and to hear everyone’s story. The true test of whether a law or new system works is the outcomes it produces over time. Option opponents should take some time to review the results being achieved now in Texas and Oklahoma, and the fact that the Tennessee and South Carolina options are built upon the exact same principles that have led to happier employees and substantial economic development.

To cover the issues related to workers’ comp options, I am writing an eight-part, weekly series. This overview is Part 1. The remaining seven will be:

Part 2: Low-Hanging Fruit – Dispelling some of the most common myths about workers’ comp options

Sometimes, these myths are simply because of misunderstandings. Sometimes, they are outright lies in a desperate attempt to maintain the status quo for workers’ compensation programs that are championed only by a subset of interested insurance carriers, regulators and trial lawyers.

Part 3:  Homework and Uninformed Hostility

Everyone complains about the inefficiencies, poor medical outcomes, cost shifting and expense of workers’ compensation systems until a viable, proven solution is presented. Then, suddenly, everyone loves workers’ comp? It’s time to take a breath and look at some homework.

Part 4: Option Impact on Workers’ Compensation Systems and Small Business

Does an option force employers to do anything? Does an option force changes to the workers’ compensation system? Are all workers’ compensation carriers opposed to options? Should past workers’ compensation reforms just be given more time to take hold? Do options hurt the state system by depopulating it of good risks? Do options increase workers’ comp premiums for small business? Is the option just for big companies, and they all elect it?

Part 5: Litigation Uncertainties

Are Texas negligence liability claims out of control?  Should Oklahoma Option litigation delay other state legislatures? Should Oklahoma Option litigation further delay employers from electing the option? Does an option create animosity between business and labor?

Part 6: Option Program Transparency and Other “Checks and Balances”

Are immediate injury reporting requirements unfair? Are option benefits simply paid at the discretion of the employer? Are option programs “secretive” and provide no “transparency?” Are there other “checks and balances?”

Part 7: Option Program Benefit Levels and Liability Exposures

Are option benefits less than workers’ compensation benefits? Are option benefits less than workers’ compensation because of taxes?  Where do the savings come from?

Part 8: Impact on State and Federal Governments

Do option programs shift more cost to state and federal governments? Do option programs increase state and federal regulatory costs? Do option programs give up state sovereignty over workers’ compensation?

How to Find Mobility Solutions (Part 2)

Before continuing from the “How to Find Mobility Solutions (Part 1)” post, I want to repeat my bias: I think that until insurers, and insurance agencies/brokers, can operate entirely using apps on smart device they can’t really call themselves “mobile-next.”

Potential insurance mobility solutions

Focus on enabling producers to use a smart device that has the requisite apps to:

  • Manage their day (and week and month) — seeing list of sales opportunities, setting up appointments, finding meeting locations and going to meetings, using the native calendar/GPS/mapping capabilities of the smart device
  • Get notices about traffic conditions and suggested alternative routes to take if the producer is driving to a meeting
  • Get alerts about severe weather
  • Pull information about the customer from an agency management system or a carrier’s customer relationship management (CRM) system before the meeting
  • Note comments about the progress of each sale after each meeting, whether by using the keyboard, stylus (if applicable) or voice entry
  • See charts showing progress-to-date or progress-to-goals
  • Pull all relevant forms into a “potential sale area” on the device — forms related to the sale of a specific line of insurance and required by the insurance company or regulators
  • View the status of each sale in process and see the steps the carrier still needs to complete, with time estimates of each step
  • Get a quote for any insurance products the producer is allowed to sell
  • Walk a prospect through a policy application form either on the producer’s device or by sending it to the prospect’s smart device
  • Coordinate a 3-way video session with a subject-matter expert, the prospective client and the producer to answer questions the prospect or producer might have about the insurance product
  • Start a video session with a customer-service representative (CSR) or other colleague in the agency or in the carrier to ask questions or collaborate on an issue – from campaign management to new products to new requirements triggered by new regulations
  • Complete the policy application form, including getting the prospect’s e-signature if that can be done at the moment. If completion isn’t possible at the time of the meeting with the prospect, then enable the producer to store the policy application and filled-in data on the producer’s smart device and also upload the information to the relevant agency or carrier systems
  • Get alerts about any of the producer’s customers filing a claim, including the “when, where and why” of the claim
  • See how much time until the next meeting takes place (this is specifically for a smart watch) and get an alert (sound or haptic touch on the wrist) when the producer is close to or at a meeting location.

I realize this is only a starter list of mobile applications for a producer. What would you add?