Best's Review



Listen Up!

Insurers should pay attention to regulators’ openness to innovation.
  • Howard Mills
  • July 2018
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Howard Mills

Failure ... cannot be tolerated in an insurance product at the expense of consumers.

In Cool Hand Luke, the prison captain (played by Strother Martin) tells inmate Luke (played by Paul Newman):  “You gonna get used to wearing them chains after a while, Luke.” Luke’s response is less than accepting, prompting a beating from the captain who explains, “What we’ve got here is failure to communicate.”

Insurers are accustomed to regulators acting cautiously with new processes and products—consistent with their primary mandate of consumer protection—possibly at the expense of innovation. After a while, insurers may well get used to wearing those chains, themselves becoming content with a slow evolution in product design or distribution.

That may have been fine back in the old days when my hair was jet black and in-depth exams every five years were the pinnacle of insurance regulation. These days, driven by technological advancements, regulation is ongoing, proactive, and probably more effective—and my hair is a lustrous silver.

As both regulation and my hair have improved, the insurance industry, too, has moved to take advantage of the significant new technologies available for innovation. Everything from telematics to robotics process automation and cognitive intelligence technologies are being used to help improve the customer experience.

Still, that may not be enough. Though the legacy players seem to have been able to incorporate the early wave of insurtechs into their business models, the possibility of significant disruption from tech giants remains. These tech giants may be able to leverage their vast capital resources and even greater data stores and data management capabilities to fundamentally reorder the business of insurance.

The industry needs to be able to fight back, to create an ecosystem that both current customers and prospective ones from Generation Z and beyond will find useful and attractive. This requires experimentation, and experimentation by its very nature means the possibility of failure.

Failure is a necessary precursor to success, but cannot be tolerated in an insurance product at the expense of consumers. Hence, we have seen calls for the creation of regulatory sandboxes, where industry can experiment while regulators can be assured consumers are protected.

These sandboxes are far more popular in Europe and Asia than in the United States, and as I sat watching a panel discussion at the NAIC’s International Insurance Forum, I started thinking that maybe there is a reason for that.

Panelist South Carolina Insurance Director Ray Farmer spoke of his department’s desire to say yes to innovation. An NAIC consumer representative on the panel said regulators have always been open to discussing new ideas. “I don’t see sandboxes as being necessary,” she said. “Regulators want to keep markets in their state open and competitive.”

Almost to reinforce that point, one panelist represented an insurtech hub in Hartford, home of the conference host, Connecticut Commissioner Katharine Wade. There is no formal sandbox in her state, but Commissioner Wade has spoken often of her openness to innovation, and clearly, some are listening.

Maybe the industry in general should as well, and move ahead with innovation, forgetting any need for formal labels such as sandboxes. They just seem to cause failure to communicate.

(Best’s Review columnist Howard Mills is global insurance regulatory leader at Deloitte LLP and a former superintendent of the New York Insurance Department. He can be reached at

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