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Insurers Strategize Regulatory Compliance

Carrie Burns May 1, 2008

Gone are the days of someone sitting at a typewriter creating 50 separate cover letters for state filings, as was the case in the 1980s when John Baumgardner joined Standard Insurance Co. The Portland, Ore.-based insurer began using simple off-the-shelf tools to automate day-to-day activities. “We’ve continuously updated the off-the-shelf items [such as Microsoft’s Word Macros and Mail Merge] year by year,” he says. “It’s very simple and cost effective.”

This is just the beginning. Insurers have begun applying a number of different business models and more sophisticated tools to their regulatory compliance management practices. Before implementing any tools, though, most will agree the process needs to start with a plan and be well thought out.

“We looked at how many hours we are spending on activities,” says Baumgardner. “That’s where you have to start. You have to know what you’re doing, how long it’s taking, how long it will take to automate, what the savings are, and then do a cost benefit analysis.”

Jackie Paul, director in government relations at Humana Inc., Louisville, Ky., had a plan in place before deciding to take a project management-type approach to the company’s compliance practices. “If you don’t have a defined process, you don’t have process controls or a secured data system where you store information—you can’t guard against rework.”

USING PROJECT MANAGEMENT

There are a variety of areas within an insurance organization that have compliance functions within them. This is a large area of concern for insurers right now, according to Debbi Marquette, product manager, Frisco, Texas-based Skywire Software. “Insurers are concerned about how they track and manage the compliance processes,” she says. “They interact with multiple business units within their organization. They don’t operate within a silo by any means.”

A project management-based approach has helped Humana, which analyzes 800 to 1,000 laws and regulations per year, with this concern. “We have multiple areas within the organization playing different roles within compliance,” Paul says. “There needed to be an integrated process with everybody having more defined roles and responsibilities. We, as a company, use a lot of performance- and process-based discipline. So, it was just applying that same discipline.”

The methodology behind Humana’s approach consists of four key steps: initiation, planning, execution and closeout. In the initiation stage, the form or legislation/regulation is reviewed and assigned to a subject matter expert through a database. Next in the planning stage, a timeline/schedule is developed and process controls are designed. The execution stage consists of validating deliverables and executing risk management, change control and any communication plan. The final stage—closeout—consists of completing documentation, obtaining final status reports and conducting lessons learned.

“We have found in practice that for a lot of the legislative and regulatory changes, it’s helpful to go through all four of the steps, regardless whether it’s a complex piece of legislation or not,” Paul says. “Certainly, it gets much more sophisticated if you’re talking about something that’s of high magnitude. We’ve had to develop pretty specialized teams and databases to store all of the documentation associated with certain legislation.”

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