INTERNATIONAL INSURANCE SOCIETY

Addressing emerging risks: regulators discuss the challenges at GIF

During the Global Insurance Forum regulators looked at some of the key risks facing the industry and its supervision. Keeping pace with developments in insurance will require expertise and innovation from inside and outside the sector, they agreed.


Just as digital disruption is a challenge and an opportunity for re/insurers, so it is for regulators. That was among the key points to emerge during the executive panel of the International Insurance Society’s (IIS) Global Insurance Forum, held on September 27 to 29.

“In the midst of rapid technological and societal change, regulators are expected to facilitate innovation, emerging risks and support environmental and governance initiatives while protecting consumer interests at every turn,” said IIS president Joshua Landau introducing the opening session on regulation.

Regulation in a changing landscape

To discuss the issues, Matt Mosher, president and chief executive officer of AM Best, hosted a discussion with three regulators from across the globe: Victoria Saporta, executive director of prudential policy at the Bank of England and chair of the executive committee of the International Association of Insurance Supervisors (IAIS); Daniel Wang, executive director of the insurance department at the Monetary Authority of Singapore (MAS); and David Altmaier, commissioner of insurance in the Florida Office of Insurance Regulation and president of the US National Association of Insurance Commissioners (NAIC).

With the event taking place virtually, Mosher started straight in on the challenges of technology. All three agreed it was a significant area for work. Altmaier noted that the NAIC already had working groups on innovation and technology, big data and artificial intelligence (AI) and privacy protections. The regulator has also developed model laws for states—on privacy protection and on the use of consumer financial and health information.

“It’s important for us to have a forum where we can make sure our regulatory activities are keeping pace with those kinds of developments.”
David Altmaier, NAIC

The NAIC plans to take it further and establish its innovation and technology group as one of the standing committees central to the association’s structure. It joins seven others, including those for life insurance and annuities and property and casualty insurance.

“It’s the first time in decades that the NAIC has created a new standing committee,” said Altmaier. “We’re doing that because we recognised that innovation, technology and data privacy will continue to be relevant, and it’s important for us to have a forum where we can make sure our regulatory activities are keeping pace with those kinds of developments.”

Saporta agreed on the importance of that, given the issues around AI, machine learning and big data analytics.

“There are lots of opportunities, but there are also a lot of complexities,” she said. There was a prudential aspect, too, she added.

So far, the changes have been mainly positive for insurers. “What we have seen as supervisors is that most companies, even if they’re not earlier adopters, can adapt their business model because they see a lot of efficiency opportunities in adopting digitisation more broadly,” Saporta said.

However, regulators could not assume that will continue. “Under certain scenarios, if big tech gets into this market in a big way, the traditional insurance model could be disrupted,” she warned.

“If big tech gets into this market in a big way, the traditional insurance model could be disrupted.”
Victoria Saporta, IAIS

Seizing the opportunities

Just as it is for re/insurers, technology is an opportunity as well as a threat for regulators, Wang pointed out.

“When fintech became prevalent six or seven years ago, many regulators viewed this development with a risks lens: What will be disrupted? What are the risk implications to customers and policyholders? Will the new business models fall within the regulatory ambit?” he recalled.

“Over the last few years, we have seen the underlying technology powering the fintech firms—AI, data analytics and blockchain—give quite a bit of momentum to the digital transformation of the broader financial sector, including insurance.

“At the MAS, our aim is to foster a financial system where innovation is pervasive, and technology can be used for several goals: to increase efficiency, create new opportunities, and manage risk better, but most importantly to improve people’s lives.”

In practice, the regulator has brought together public and private sectors to co-create “foundational digital infrastructures”. These include Singapore’s national digital identity system, for example, which allows residents to transact digitally with the government and the private sector.

More recently, the MAS worked with the financial institutions to establish the Singapore Financial Data Exchange giving individuals access to banking information, deposits, credit cards and loans from all major banks in Singapore through a single portal. Next year or soon after, information on insurance policies will be added in the next stage of development, Wang said.

“The IAIS has done work on the potential for these innovations to be disruptive, but they are positive opportunities in terms of financial inclusion and better pricing for consumers,” agreed Saporta. And there is another benefit to supervisors.

“We’re doing work on how supervisors themselves can use technology, so-called ‘suptech’, to make their supervision much more efficient,” she added. Like most other aspects of technology, that’s received a boost from the pandemic.

“The pandemic did not necessarily accelerate the development of suptech, but it certainly accelerated its deployment and utilisation,” remarked Wang.

“Regulators are expected to adapt to evolving risks without neglecting the ‘bread and butter’ issues.”
Matt Mosher, AM Best

The war for talent

In keeping up with developments, however, supervisors face one further issue: capacity. Mosher noted that regulators are expected to adapt to evolving risks without neglecting the “bread and butter” issues that have traditionally occupied them.

Saporta said: “That has implications about the resourcing of regulators because to be able to do both, you need sufficient resources.”

Talent, she remarked, was a particular issue. “In some of these areas you need very specialise resources, such as data scientists or people that understand cyber risks, and there is a lot of competition in the market for these types of skills, including from the private sector.”

It is not restricted to technology. Environmental, social and corporate governance (ESG) issues were another topic discussed by the regulators during the session—“a huge agenda item at the moment”, according to Saporta.

“Regulation on governance—and to an extent, societal issues in terms of diversity and representation on boards—has been within the regulatory remit for years,” said Wang. “However, the focus on environmental issues is more recent, and there remains a need for regulators as well as insurers, to upskill.”

Here again, the war for talent is raging.

“Not only are we competing with financial institutions in the marketplace for similar talent, but in the space of climate risk and environmental risk management, we are also competing with academia and non-governmental organisations,” said Wang.

“We’re competing in the same market for the same scarce talent in very fast-growing but still nascent areas in some cases.”

“In the space of climate risk and environmental risk management, we are also competing with academia and non-governmental organisations.”
Daniel Wang, MAS

Looking for the next risk

For both ESG and technology, to succeed regulators will need not just to compete successfully for skilled people but also to draw on talent outside, collaborating with academics and researchers.

“That’s becoming an increasingly important part of a regulator’s job—to find platforms and engagement methods to touch base with different stakeholders.”

Such approaches will be key to addressing not just the current issues facing the sector and regulators but those the future brings.

“Regulators need to keep their ears to the ground to detect emerging risks quickly enough to mitigate them effectively,” Altmaier said.

“A key challenge is how we ensure that our regulatory framework enables us to see what’s coming and able to address whatever that next challenge over the horizon is.”


Image courtesy of Shutterstock / New Africa


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