The Quickening Pace of Compliance

As insurers move rapidly to adopt more consumer-centric business models, their efforts are tempered by equally imperative compliance concerns surrounding these new forms of communications and business transactions.

Insurance Networking News, June 1, 2012

Pat Speer and Justin Stephani

The demands for organic growth are intersecting with an increasing volume of regulatory pressures tied to consumer protection to create a perfect storm for insurers.

Regulation is largely a stepchild of markets; as the economy ebbs and flows, so does lawmakers' interest in protecting businesses and the consumers who rely on their services. Lately, thanks mostly to technology-enabled customer communications and transactions, consumers are the focus of much of the regulatory interest affecting insurers in the United States and abroad.

Yet, against the backdrop of increased reporting requirements to satisfy consumer protection mandates, insurers may ask, "How much is too much regulation?" The G20 recently asked the Financial Stability Board (FSB), which coordinates the work of national financial authorities and international standards organizations for effective regulatory policies, to cooperate with the Organization for Economic Co-operation and Development (OECD), which provides a forum for governments to seek solutions to common economic problems, in its work with consumer finance protection.

The OECD's reach into the insurance sector is not new; in May 2011, the organization agreed on revised OECD Guidelines on Insurer Governance, which calls for insurers to have "boards with necessary leadership, expertise, and independent decision-making, effective risk management and internal control systems and integrated firm-wide reporting within an insurer...."

It follows that industry groups are questioning this new "consumer agenda," especially in light of the potential for international and state regulatory issues to overlap with federal efforts. Recently, David Snyder, the American Insurance Association (AIA) VP and associate general counsel for public policy, cautioned regulators' support of mandates that may result in "duplicative and prohibitive regulation of a stable insurance industry and marketplace," calling out measures that are inefficient.

That cautionary note isn't stopping the National Association of Insurance Supervisors' (NAIC) International Insurance Committee from reviewing a full spectrum of international regulatory issues including the Solvency Modernization Initiative (SMI), recent developments before the OECD, and recommendations from the International Association of Insurance Supervisors (IAIS). The outcome of this review has yet to be published.

All this activity means insurers must improve their understanding of regulatory risk, as well as identify and track changes to regulatory policies. The costs associated with making even simple changes to compliance functions are significant and create additional demands on resources. According to a Thomson Reuters' Governance, Risk & Compliance business unit report, more than 84 percent of compliance officers surveyed believe the flow of regulatory information will increase in 2012. More than a third of those respondents report spending an entire workday each week considering regulatory changes.

Insurers reviewing their consumer strategy, therefore, must take into consideration the largest possible risk of doing business with this mobile technology-enabled and social media-wielding market, and weigh that against the cost of compliance.

Social Media

In an informal community such as Facebook, despite the fact that information may be publicly displayed, consumers are not thinking about insurance repercussions when posting.

"If I'm friending my insurance company on Facebook and then start asking them questions, giving them details about me and sharing personally identifiable information, an insurance company does have a duty of care to remind me that I really ought not to be doing that because I'm opening myself up to personal identity fraud," says Sarah Carter, VP of Marketing, Actiance.

"Then again, the insurance company also has a duty to understand the suitability of products they're selling to the consumer, and in that way, social really is a very good thing because you can identify more about a lifestyle and potential risk factors by potentially tracking what folks do on social networks."

To assist insurers, regulatory bodies have tried to provide guidelines for most basic communication and branding purposes, which mostly translate old rules of communication to new mediums.

"The NAIC are following very much what FINRA, in the broker/dealer space, did: making sure communications are reviewed before they're sent, making sure the proposed product is suitable and the records are retained," Carter said.

Mark Henneges, head of digital strategy, ING U.S., provides a basic checklist for compliant social media communications: have a system of review for posts; archive all conversations carefully, date them and make sure they're easy to access; and maintain the responsibility and integrity owed to advisors and reps as well as the public.

Indeed, social media is, on a basic level, just another form of electronic communications and so the old rules apply. But what about social's potential beyond basic communication and branding?

For more information on related topics, visit the following channels:

• Compliance
• Customer Service
• Data Management
• Distribution
• Policy Administration