Insurance Regulatory Overview
The current trend of Insuretech foraying into the IoT arena has lead to a significant increase in the collection, storage, and use of a diverse amount of information by insurance companies. Often referred to as big data, this information boom in the insurance industry has been described by the National Association of Insurance Commissioners (NAIC) as unstructured or structured data being used to influence underwriting, rating, pricing, forms and claim handling. With the help of big data, insurance companies can more accurately underwrite and assess risk, reduce fraud and provide quicker claims servicing.
According to NAIC, there are few regulatory concerns stemming from big data, such as a lack of transparency, a potential bias in algorithms used to synthesize big data, highly individualized rate that lose the benefit of risk pooling and the cyber attacks. Against this backdrop, insurance companies should consider the following regulatory issues that could impact them.
The growing regulation of ‘systemic risk’ in insurance landscape without an explicit understanding of sources and transmission channels might not address the specific aspects and it might not use the appropriate tools. Without any doubt, considering the various economic and financial role of capital, it is evident that capital surcharges would be the preferred instruments in insurance. Insurance regulators should be given the time and the analysis to address them in the right way and in the right sequence.
In the current market scenario, the ability to leverage data and predictive analytics to speed up underwriting and decrease market friction could lead to both competitive advantage and market expansion. Regulators across the globe are working hard to solve the issue. The National Association of Insurance Commissioners has designed the Big Data Working Group to “review current regulatory frameworks used to oversee insurers’ use of consumer and non-insurance data.”