Best's Review

AM BEST'S MONTHLY INSURANCE MAGAZINE



Technology
Silver Lining

New compliance regulations are spurring insurers to build frameworks for a strategic ROI.
  • Tim King
  • August 2020
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Aflac expects to spend $60 million through 2021 in order to comply with Long Duration Targeted Improvements accounting standards. In addition to LDTI (or similarly, IFRS 17 outside the U.S.,) two other regulatory trends include consumer data privacy protections and sales practices standards. The potentially significant price tag of compliance leaves carriers asking: If there are required investments in technology and business processes to comply with, how can we repurpose those investments for strategic impact in other areas?

Strategic return on investment in the context of compliance presumes that the cost to comply with a given regulation is relatively fixed (e.g. the investment) and that the strategic return is manifested in noncompliance-related improvements, such as increased sales or reduced overhead. To benefit from this strategic ROI, insurers must recognize that the underlying data and related analytics used for compliance is also helpful for improving customer-facing and internal business processes.

The framework to accomplish this has three components:

  • Analysis of regulation fundamentals.
  • Categorization of the underlying data requirements.
  • Analytics-driven process improvements that can be realized through fulfillment of the aforementioned data requirements.

While the three categories of regulation vary from a business perspective, there are similar recurring data needs behind the stated objectives. All require the synthesis of data across multiple phases of the insurance value chain. For accounting regulations, this means marrying claims, premium and demographic data to project cash flows. Right-to-be-forgotten mandates require access to consumer data generated from any touch point with a customer. Monitoring of sales tactics necessitates the blending of consumer net worth and risk tolerance information with details of products sold.

Similar commonalities exist for speed and/or frequency of access to data. New accounting regulations stipulate more frequent cash flow projections. The California Consumer Privacy Act requires a 45-day response time to each individual request. Life and annuities sales teams must accelerate assessment of “best interest” to not miss sales opportunities. From a granularity standpoint, all three regulations require policy level mobilization of data.

Regardless of the business case, a broad spectrum of business processes can benefit from investments made in the name of compliance. The marketing and sales functions require greater granularity of historical customer interactions needed to understand all historical interactions. Speed is key to differentiate and hyperpersonalize the purchasing and servicing experience.

Underwriting faces massive data complexity to supplement human judgment in large account underwriting. A want-it-now mentality in personal lines underpins the need for timeliness. Granularity of customer data, both internal and external, is paramount for hypersegmenting risks. Equipped with more agile access to highly granular claims data, claims teams are better positioned to detect fraud, identify subrogation opportunities and inform claim triage.

To realize strategic ROI on activities otherwise forced upon insurers by new regulations, carriers must view compliance as an opportunity to derive strategic value by improving customer experience, driving revenues and making smarter pricing and underwriting decisions.

Insurers who align the broad data needs of revenue-generating and customer-facing C-suite stakeholders with compliance-driven investments in technology will be best positioned to deliver the most total value.


Best’s Review contributor Tim King is an industry consultant in Teradata’s Financial Services Enterprise Consulting Team. He can be reached at tim.king@teradata.com.


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