Regulation: Still a big industry concern (though a tad less)

For U.S. insurers, the lengthening stream of regulations imposed by federal and state regulators poses a mounting threat. The list is long, ranging from rules governing principal-based reserving and stress tests to annuity sales tactics and — the latest bane of the industry — the Department of Labor’s proposed fiduciary standard.

If it’s any consolation to the companies, the myriad of regulatory and risk management issues confronting them is not quite as bad as one year ago. When measured against a baseline 100-point scale, the sum of the regulatory challenges in 2015 would actually show a modest decline this year.

Or so reports Wolters Kluwer Financial Services in a new survey of regulatory and risk management pressures facing U.S. insurers. The study tracks 10 factors across two consecutive 12 month periods from September 2013 to September 2015 — the ability to comply with regulatory changes, maintain compliance staff and manage risk across business lines, among others — then calculates an “indicator score,” a measure of regulatory complexity and the insurers’ compliance and risk management challenges.

This score dipped slightly in 2015 from its baseline of 100 in 2013. The survey authors attribute the dip to “steady regulatory activity and enforcement actions, a decline in the total cost of fines issued, along with insurers investing less in compliance staff and technologies over the last 12 months.”

But the report adds that most insurance professionals remain concerned about their organization’s ability to:

• stay informed of changing laws and regulatory requirements (62 percent),

• maintain compliance with changing regulations (61 percent, down from 64 percent in 2014) and

• demonstrate compliance to regulators (59 percent).

“The good news for the insurance industry is that less than half (48 percent) of insurance professionals are concerned about their organization’s ability to invest in new compliance technologies,” the report states. “The majority of insurance professionals believe their organizations have the budget available to invest in new compliance technologies to address their compliance concerns.”

The survey also reveals these results based on responses from the 300-plus industry professionals polled:

• 70 percent of senior insurance executives remain concerned about whether their companies can track and meet the compliance standards of changing regulations.

• 60 percent say cyber security will receive escalated priority at their organization, followed by regulatory risk at 42 percent.

• 42 percent indicate they had not made investments in compliance technology during the past 12 months.

• 29 percent said their organization had increased staffing levels to help monitor and manage compliance with changing regulations.

• 27 percent said their organization had made investments in compliance technology.

See the slides beginning on the next page for additional survey highlights (you can click to enlarge the images).