Here's the thing, regulation continues to be one of the major drivers of change in the insurance market globally, and insurers often struggle with making the most of the positive force it provides. Ultimately regulation ensures a fair and competitive market, shaping sustainable and value generative businesses. It doesn’t always get everything right, sure, but what it does ultimately is hugely beneficial.
The biggest constraint has always been people’s ability to understand and interpret regulation and build this into the working model of the business and especially in the processes surrounding change. It’s essential to see regulation as a force for good and make this step change happen.
By comparison to other industries I’ve worked in, insurers are sometimes in danger of overplaying how onerous regulation really is. Or at least why they find it this way. Regulation is essential for a competitive, stable, customer-first marketplace.
Globally, and operating from the United States, EMEA, and Asia Pacific, we at EIS see a massive regulatory focus around fairness to customers, and ensuring the competitive context supports these goals. More broadly, we see capital standards changing. However, it’s not the same everywhere.
Regulatory changes and rise of third-party insurance distributors and aggregators
There’s still this emerging intersection of digital, insurance, and regulation in insurance, particularly around data protection and using digital methods to actually improve regulatory outcomes.
If insurers are to differentiate themselves in this era and form lasting relationships with people, they need to embrace regulation and use it as a drive towards developing more meaningful value propositions. Ones that are more integrated, risk reducing, and flexible, with far more meaning placed on how they can be valuable to a customer.
Consumer protection and data remains a focus globally. For example, in the UK, we have the Fairness Duty emerging, which places expectations on insurers to treat customers fairly, and things like GDPR, which already mean that insurers need to do a better job of using data in the context of a more meaningful relationship.
Low trust and a drive to get “best price” still dominates a lot of insurance markets. This stems from a very transactional relationship, low-touch, and a general sense that the only purpose is to pay-out if a risk has been realized, and a belief that the business is engineered to do the opposite.
The further rise of distribution in insurance only means that to stop this price driven churn behavior and compete better in these channels insurers need to change and become the ecosystem businesses they really need to become.
How can insurers prepare for sudden changes in regulations?
Generally I am frustrated by looking at regulatory changes as obligations rather than opportunities. Data regulatory changes like GDPR were massive opportunities to think about forming meaningful relationships with customers and in acting fairly in any relationship based on an exchange of data. It’s intended and designed to improve trust and customer success.
Insurance has largely missed or skipped the real benefits of the experience economy. And now we are entering a new era of ecosystem business models, where we are integrating with a much wider world, embedding insurance, adapting to massive changes in the macro-environment and – the natural environment as well. And that means exchanging data and integrating it with a proliferation of distribution opportunities. So, sensitivity around data and cyber security risks become more important. And regulation is adapting to support this.
And you really need to be able to see and understand your customer fully and to adapt experiences around this in order to make this work. Even simple things like making sure people actually understand their policy can be made so much richer by using digital capabilities, but insurers barely touch the surface of this. So, when a change happens insurers simply lack the toolkit and business model to act effectively, and real change is highly complex and expensive.
Which regulatory changes pose a perceived threat to insurers?
We are seeing big shifts in things that relate to treating customers fairly, and insurers will need to adapt to pricing structures in which an acquisition price followed by a rate hike at renewal are things of the past.
We see the need for full and transparent audit-ability, and soon enough: real-time audit-ability. And we will need the ability to “prove” that customers were offered every chance to understand the product and services they have purchased.
The other big changes are in the need to address vulnerable customers and provide alternative coverages, rather than simply rejecting or out pricing those risks.
I also think there is a huge shift coming in the actual definition of insurance as the industry adapts to the rise of insurtechs, embedded insurance, ecosystems, risk removal and the accompanying regulatory changes that necessarily will follow.
In conclusion
Truly agile insurance models have been stifled because we haven’t typically developed them in consultation with regulators. As market enablers, regulators can be a force for good, but often within insurers regulation is applied at the end of change and this causes obstacles as opposed to being a guiding force for positive change.
To take advantage of the opportunities insurers will need highly adaptable business and technology architecture, and the right foundations to drive change in this ever-evolving regulatory landscape.
This is a huge opportunity to be better, and drive and guide digital transformation towards success. Making our industry better for customers, more competitive and less price dependent, in GI in particular. And use regulatory changes to ultimately form more meaningful relationships with customers and extend services beyond insurance.
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