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Technology in insurance regulation. Opportunities for the industry.

Technology in insurance regulation. Opportunities for the industry.

This paper reviews the opportunities for using technology in insurance regulation (regtech) and supervision (suptech). It is supported by insights from a series of focus groups with UK insurance industry practitioners conducted in the summer of 2021. Insurance firms have been slower than those in banking and capital markets to seize the opportunities of automated regulatory compliance, but they can learn from the experience of other firms.

The most prominent of these opportunities for insurers are large potential cost savings in automated prudential reporting, especially the reporting of financial assets required under Solvency II and any future regime emerging from the review of Solvency II for UK insurance firms. Recent efforts at automation of prudential reporting, for example the BoE/FCA ‘Digital Regulatory Reporting’ initiative, are highlighting the need for industry/ regulatory collaboration on common standards for recording of financial data and financial contracts; and on using these to support reporting based on processing of underlying granular data. UK insurance industry is as yet rather less involved in these collaborations on automated prudential reporting than firms in other areas of financial services. This can be expected to change as insurance firms recognise the benefits from engaging and collaborating at industry level.

There are also opportunities from employing technology to reduce the costs of conduct regulation for insurers, both compliance costs and fines, while also improving outcomes for customers. The FCA’s new ‘Consumer Duty’ will require UK retail financial firms including insurers to be responsible for assessing and, critically, for evidencing that their actions are delivering good outcomes for consumers. The new systems and processes required for assessing and evidencing fair outcomes for consumers will only be effective if they are technology-based.

Our work also highlights the major challenges for insurers in relation to data security and data sharing. These challenges are far from being insurance specific. They include (i) concerns about data security, including cyber security and inappropriate use and dissemination of customer information; (ii) achieving the right balance between sharing of data between firms and protecting and achieving returns from their investment in data; (iii) the ethical use of data and ensuring the outcomes of automated data processing is ethically acceptable.

In line with other research emerging from our TECHNGI project, we find that the challenges of employing data and AI technologies in UK insurance is ultimately organisational and cultural not technological. The technologies themselves are increasingly mature but to make full use of them requires considerable investment whose returns can only be fully realised over the longer term. Marginal changes to operational systems will not suffice. What is needed is consistent cross-firm technology strategy that orchestrates technology-based change in systems and processes across the organisation.