Tag Archives: regulation

Life Insurance Is Ripe for Change in 2021

While the repercussions of the pandemic and subsequent economic paralysis touched many industries, changes within the life insurance sector are among the most widespread. Some changes were underway prior to the events of 2020, yet the pandemic and its economic consequences accelerated an industry-wide transformation. Regardless, life insurance is shaping up to look vastly different in 2021.

New Administration and Best Interest Regulation

Under the incoming administration, the focus on consumer protection regulation will rise for financial services, including insurance. Much of this has been done at the state level already, but we’re seeing increased appetite among federal regulators to extend certain requirements.

New York’s 2019 amendment to Regulation 187 is a perfect example. The rule requiring insurers to act in the best interest of the consumer will likely become the standard for the U.S. life and annuity insurance industry over the next few years. The rule demands more simplicity and transparency within the annuity and life insurance sales experience to prevent what some call “consumer financial exploitation.”

The last four years revealed trends toward a “consumer-only mindset” that’s rooted in transparency. For the life and annuity sector, this means digital product comparison will be necessary. Carriers and distributors with a strategic growth agenda should seek to align with this trend rather than ignore it.

Annuity and life insurance sales have traditionally relied on in-person relationships and meetings; with COVID-19 forcing the industry into virtual selling, regulators will want more auditability and transparency over how consumers are treated during the virtual sales process.  

Consumers Demand More Control Over Virtual Experiences

Consumers are also experiencing a transformation of their own. With the majority of lives moving toward virtual experiences and the increased demand for instant answers or services online, consumers have little to no patience for a traditional, paper-based sales process.

This is one of the main reasons that life insurance sales haven’t kept pace with general population growth. Younger generations demand seamless, often-personalized digital experiences with the ability to compare policy options dynamically and interactively in real time. Moreover, most Americans now rely on smartphones and broadband technology to do everything from banking to tracking the status of the COVID vaccine, according to Pew Research. This heightened reliance on digital experiences has affected consumer interest in life insurance and the ability to effectively sell it.

Creating an interactive visual life insurance experience is increasingly popular among carriers and distributors. Virtual sales meetings are also increasing. More and more, consumers don’t want to feel pressured to attend a one-on-one, in-person sales meeting and want more flexibility in the sales experience.

Additionally, for better or for worse, we’ve all come to expect immediate gratification and a quick transaction. This same expectation carries into insurance, especially when it comes to term life. We expect the growing shift to “instant issue” capabilities will continue at a compounding rate in 2021. We also believe many innovators will seek to apply the instant issue model to select product classes and target audiences in the permanent life space.

See also: 6 Megatrends Shaping Life Insurance

The Uninsured and Underinsured at Highest Risk

2020 also exposed the risks for remaining uninsured or underinsured in America. Years of shifting cultural priorities along with outdated digital experiences have left many Americans without adequate life insurance. Unfortunately, this past year has given a glimpse of how dangerous that can be.

Americans now realize how vulnerable they and their families are without sufficient savings or insurance. With new insuretech platforms simplifying the purchase of life insurance, we expect an accelerated shift in tech adoption. For example, we saw a 155% rise in virtual life and annuity insurance sales meetings last spring, and that trend only increased throughout the year. Consequently, financial professionals, insurance carriers and distributors are investing in technology platforms to deliver a “hybrid” sales approach where the adviser or agent blends expertise with a consumer-oriented digital experience.

Overall, while 2020 was a transformative and challenging year, it also propelled the insurance industry forward at an accelerated pace. Regulations that reflect our new reality and cultural shifts will continue shaping the industry into 2021 and beyond. Carriers and distributors that aren’t moving toward digital transformation now will fall further behind in 2021. Despite the rollout of COVID-19 vaccines, experts agree that “normal” life is unlikely to return in the first half of the year, making these major trends a new part of the life insurance selling experience at least for the foreseeable future.

Global Trend Map No. 14: Regulation

Following on from last week’s post on investment management, today we tackle that omnipresent question for carriers old and new: regulation. Regulation affects absolutely every part of the insurance business, from how customer data is held and used to how insurers reinsure themselves and invest the premiums they gather.

The time and money cost of complying with regulation is often significant, with recent estimates suggesting that 10% to 15% of the total workforce in financial organizations is currently dedicated to governance, risk management and regulatory compliance. The opportunity for greater efficiency here is so large that a whole new tech-powered industry – regtech – has sprung up around it. And, with demand for regulatory, compliance and governance software expected to reach a massive $120 billion by 2020, this is a space to watch.

The following stats and perspectives are taken from our Global Trend Map; a full breakdown of our survey respondents, and details of our methodology, are included as part of the full report, which you can download for free at any time.

See also: New Regulations for Disability Claims  

Assessing the Impact of Regulation

Regulation is a serious issue not just for (re)insurers but for the insurance ecosystem more generally. Out of all our survey respondents (unfiltered), 20% indicated that regulation had impeded progress “a lot.” As we see from our our burden chart below, the impact is evenly spread across different ecosystem players.

Here, 24% of brokers and agents state that regulation has impeded progress “a lot” within their organization, along with 17% of technology partners and 22% of insurers. The trend is the same when we use a weighted score (one point for “a little,” two points for “somewhat” and three points for “a lot”), giving us an overall “burden score” of:

  • 186 for brokers/agents
  • 159 for technology partners
  • 175 for insurers

While regulation is a concern for insurance companies across the whole globe, it manifests itself differently in different regions. Our stats suggest that regulatory burden is above trend in Europe and below trend in Asia-Pacific (in terms of respondents answering that regulation is impeding progress “a lot”). Regulatory compliance certainly remains a daily issue in APAC but may, for structural reasons, be easier to deal with there on a big picture level.

In Asia-Pacific, industry participants have the advantage of dealing, in the main, with large national markets (bigger than any U.S. state, for instance) but without the complexities of an overarching regional regulator (like we find in Europe with the E.U. and Solvency II). That said, carriers wishing to be active across the region still have a multitude of different regimes to comply with.

Additionally, we asked survey respondents to indicate, via an open-text response, which regulations were currently the greatest cause for concern. There were too many responses to list everything, but some that stood out were Solvency II and the Insurance Distribution Directive (IDD) from respondents in Europe, and the DOL fiduciary rule from respondents in North America.

“Currently the focus is on protecting personally identifiable information, personal health information and personal credit information. Regulations in the future may evolve, requiring companies to ensure that they are using information in a fair and just fashion. For example, much can be inferred from the data from an individual’s smartphone, but it may not be fair and just to act on those inferences.” — Cindy Forbes, EVP and chief analytics officer, Manulife Financial

Regulatory Burden: A Growing Challenge

There is a marked trend toward rising regulatory burden, and we found this to be consistent across our different ecosystem players and regions.

89% of insurers and reinsurers believed regulation was posing a greater challenge to their organizations than during the previous 12 months.

“Increased regulation” was one of the external challenges we explored in our industry challenges section, coming in sixth place out of 12 (based on all respondents). Drilling down into different carrier departments reveals that its impact is not evenly distributed across the business: “Increased regulation” was among the top three external challenges for carrier staff working in actuarial, analytics, capital management (where it took the top slot), investment, risk, senior leadership, strategy and treasury.

The overall balance of these departments suggests the greatest burden from increased regulation within (re)insurers is falling on the investment and risk-modeling side of the business. Europe has certainly been a case in point over the past couple of years, with Solvency II subjecting carriers to more rigorous capital requirements.

See also: Aggressive Regulation on Data Breaches  

Regulation’s growing prominence in the eyes of high-echelon staff (senior leadership) indicates just how seriously it is viewed within the ecosystem. This, along with the other measures we have presented in this section, creates a perfect storm for the rise of regtech over the coming months and years.

Why #Insurtech Doesn’t Matter

Last week, I included my summary of what we do in Insurance:

Insurance is a business where we provide people with peace of mind, allowing them to know that there will be a monetary solution provided when they suffer a major loss/accident (or minor, depending on coverage purchased). This loss/accident can either in the form of health, death or to some sort of property, and the solution is at a time when a person typically needs it most. That is the core of our business. 

This summary also relates to the three pillars of Insurance, which I mentioned a few weeks ago:

  1. Pricing –  Was the policy I purchased priced properly to take care of the costs of the insurance company running its business, and will it have enough?
  2. Reserves – to pay my
  3. Claims – in a timely manner.

As with many of us, I read and follow a lot of news on insurance and insurtech. Every day, my LinkedIn feed and email inbox is flooded with insurtech news, including new investments in startups, new insurtech partnerships formed, expansion of startups into new markets/states, etc.

I love reading all of this – as it shows the growing level of awareness of how new technology solutions can enhance the customer experience and also help companies with operational efficiency.  I am a huge fan of what the future entails.

However, I am also cautious of the risks currently present in the world of Insurance (and the world in general!).

See also: Insurtech Innovator – CyberWrite  

Currently, the pace of change and adoption of insurtech solutions is faster than ever before. It seems there are no signs of slowing down. However, as with any good plan, it is important to have risk mitigation and contingency plans.

The new technology solutions that we are building for the insurance industry (i.e., insurtech), are just an enabler. It’s not that these solutions don’t matter…. But, if the risks are not managed properly and plans are not in place for these solutions, then the progress of the many insurtech initiatives may slow down, or in some cases, not be around to matter.

What are some risks as it relates to insurtech? I will focus on three, which have been themes in the news for the past couple of months. In fact, these are risks that exist in our industry regardless of insurtech.

By no means are these the only risks that need to be mitigated, yet I do see these as some of the big ones:

  1. Macroeconomics
  2. Weather/Natural Disasters
  3. Regulation


Since 2008, global stock markets have been on a tear. It’s no wonder that there is so much money pouring into insurtech investments.

What happens if there is a market correction and we go into another global recession? Will we see the same sort of investment in insurtech solutions as we have been seeing?

And that’s just the equities market. What about fixed income?

In this FT article from August, Chubb’s CEO Evan Greenberg warns about the low interest rate environment and its effect on insurers. He says, “Many companies are not earning their cost of capital — and many are losing money, or will lose money in the future.” This is a big deal. This may have an impact on an insurer’s ability to pay claims in the future. Obviously, insurers will have to keep their solvency requirements due to regulation, but if this continues, we could see massive premium increases for customers and withdrawal from certain product lines.

Stock markets and fixed income aside, the next big risk that could affect the progress in insurance and insurtech has to do with climate change.

Weather/Natural Disasters

Over the past few months, we have seen Hurricanes Irma, Maria and Harvey ravage much of the Southeastern U.S. and islands nearby. California has been blazing in fire. In other parts of the world, there have been many natural disasters, too. I’ve seen a number of articles on this subject. They range from “how to claim from your insurance company in wake of natural disaster” to “how much insurers will be out of pocket for weather-related claims.” With climate change increasing, the unknowns also grow. I’ll admit, I’m not an expert in catastrophe pricing, but I would suspect that this increasing factor will make it much more difficult to price products.

So, equities may fall. Interest rates may not come up. And natural disasters could be on the rise. These risks are big, but the last one could take the cake: regulation.


President Trump has signed two executive orders – one that will allow customers to purchase cross state border and one that limits funding for Obamacare (though that has seemed to change course).

The impact that these have on the U.S. healthcare and insurance market is unknown for now. This is a topic that deserves its own write-up, and I plan to cover this sometime in the near future.

Regulation can really screw things up; if not looked at properly. I wrote about government collaboration a few weeks ago. Some governments are more open to collaborating with incumbents to better understand fintech and insurtech. However, for those of us who have worked with regulators, we know that their minds can change quickly, and knee-jerk reactions can be made, forcing our plans to change.

Different product lines have different opportunities and different risks

For some lines of insurance, mainly P&C, insurtech has a huge play, and there are many opportunities to disrupt and change the current Insurance value chain. If autonomous cars come into existence, the whole auto Insurance industry will change. For property insurance, smart homes and devices to monitor buildings will help to better optimize pricing and policies for consumers.

For travel Insurance, insurance to protect material objects (mobile phones, electronics, etc), UBI and insurance for the sharing economy, there will be opportunities to disrupt and enhance the customer proposition, too.

For life, health and catastrophe, it becomes a different story.  We see a lot of term life online, but what about whole life, universal life, annuities, etc? What about other, more complex products for individuals/businesses (disability, long-term care, commercial)?

See also: Innovation — or Just Innovative Thinking?  

My biggest worry comes from within these types of products. My years in insurance have primarily been on the life, health and annuities side. The pricing structures of these types of products have a longer tail than P&C. Health is annually renewable, but the cost of healthcare and frequency of visits to doctors have been increasing, which will make pricing more difficult.

So what can we do about this?

First and foremost, every startup and incumbent needs to have a risk mitigation strategy and contingency plan as it relates to their insurtech initiatives. It is easy to get caught up in the excitement of what we are doing, and talking about risk is not always the most fun. The risks above are just a few macro ones. Each company and each initiative will carry its own set of risks, which need to be assessed accordingly.

Second, collaboration continues to be key. Especially cross-border collaboration. We need to share best practices globally. Regulators will also need to continue to work with incumbents and startups to understand the solutions being put in place and risks to customers.

Third, actuaries need to get with it – quick. They need to use their skills of actuarial modeling and work with the data scientists out there to better understand all the data points available to them and how this can be incorporated into pricing models.

The marrying of actuarial pricing principles and data science will be one of the most powerful forces of change in our industry. Incumbents have been managing risk for hundreds of years. The nature of managing risk has changed with the explosion of data. It’s no longer about just looking at what has happened in the past and predicting what will happen. Let’s also get underwriters in this conversation.

We need to find opportunities to know what is working where, and what is also not working, so we can plan accordingly. We are all in this together, and we need to help enhance our industry together. We all have a collective responsibility, ultimately, for our customers.

This is a repost of my article on Daily Fintech. I look forward to reading your comments on this article and engaging in some discussion.

Innovation Executive Video – Wisconsin’s Ted Nickel

Wisconsin Insurance Commissioner Ted Nickel, president of the National Assn. of Insurance Commissioners, talks with Innovator’s Edge CEO Wayne Allen about insurance innovation, the pace of change and the opportunity for regulators to be more engaged in these efforts.

View more Insurtech Executive videos

Learn more about Innovator’s Edge

Key Findings on the Insurance Industry

Insurance CEOs are acutely aware of the disruption and change facing their industry. Keeping pace isn’t just a matter of adopting new technology. It’s also about being innovative and developing the customer intimacy needed to meet fast-shifting market expectations, while sustaining an unrelenting focus on reducing costs.

Disruption and change

Insurance CEOs’ concerns over regulation, the pace of technological change, shifting customer behavior and competition from new market entrants have continued to rise from their already high levels. In fact, no other industry group of CEOs is as “extremely concerned” about the threats to growth in these four areas.

Incremental innovation and marginal cost savings won’t be enough to sustain profitability and growth in this disrupted marketplace. The good news is that many insurers are embracing innovation. Two-thirds of insurance CEOs see creativity and innovation as very important to their organizations, ahead of other financial services sectors. They’re also ahead of the curve in exploring the possibilities of artificial intelligence and humans and machines working together.

Innovation and growth

86% of insurance CEOs believe technology will completely reshape competition in the industry or have a significant impact over the next five years. The gathering transformation is already evident in areas ranging from robo-advice to pay-as-you-go and sensor-based coverage.

See also: Convergence: Insurance in 2017  

Cutting-edge customer interaction and data analytics have enabled insurtech businesses to set the pace in the marketplace. However, rather than being just a threat, collaboration with insurtech businesses can help more established insurers to make the leap from incremental to breakthrough innovation. This includes improving insurers’ ability to analyze the huge amounts of data at their disposal, which can lead to better customer understanding, higher win rates and more informed underwriting. Partnership with insurtech can help insurers improve processes, increase efficiencies and reduce costs.

Data, digitization and trust

While digitization and data proliferation are now central elements of the insurance business, they bring increased cyber risk. More than eight out of 10 insurance CEOs (81%) are “somewhat” or “extremely” concerned about the impact on their growth prospects, on a par with banking and capital markets (82%).

Given the volume of medical, financial and other sensitive policyholder information that insurers hold, breaches could lead to a loss of trust that would be extremely difficult to restore. More than seven out of 10 insurance CEOs (72%) believe that it’s harder to sustain trust in this digitized world, though they also see the management of data as a competitive differentiator.

Grappling with regulation

A massive 95% of insurance CEOs are at least “somewhat concerned” about the potential impact of over-regulation on their growth prospects, and 67% are “extremely concerned.”

See also: Insurance Coverage Porn  

The need to implement so many regulatory reforms across so many areas has inevitably tied up management’s time and made reporting more cumbersome. Compliance demands and costs also continue to rise, straining operational infrastructure and holding back returns. However, these are the unavoidable realities of today’s marketplace. Insurers that are able to build the changes into business as usual can gain a critical edge. And pressure on returns means the “second line” now has to pay its way as part of an approach that shifts the focus beyond compliance to sharpening competitive advantage.

Download the full report here.