Best's Review


Insurtech: Regulatory/Law
Insurtech & Regulation

Regulators must face the question: Are they facilitating innovation or putting up barriers?
  • Howard Mills
  • January 2020
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Insurtech has been a top-of-mind issue for several years now. As we begin the new year, it is a good time to take stock of how regulators are addressing technology initiatives and determining whether they have become barriers to, or facilitators of, innovation.

Companies turn to technology for various reasons—to disrupt the traditional insurance industry through the application of artificial intelligence, big data analytics, robotic process automation, etc. Or it can help a company create a new business model, maximize efficiency, speed up underwriting or improve the customer experience.

We have seen an evolution in expectations of insurtech—initially thought to have the potential to be a major disruptor of the insurance industry. We have seen a trend toward partnerships—the tech upstarts joining with traditional carriers and reinsurers. There are many theories as to why this has happened. Most would agree that the challenges posed to the new entrants to the insurance industry by the state-based insurance regulatory structure proved to be more complex than many from outside the industry expected. Partnering with established insurers has helped some of the newbies to meet the regulatory demands.

In 2017, the National Association of Insurance Commissioners established the Innovation and Technology Task Force to help regulators understand and respond to the changes that insurtech would bring to the U.S. insurance industry. In my experience, regulators are concerned that they not be a barrier to innovation that has the potential to benefit consumers, but they are also understandably reluctant to upset a regulatory structure that has successfully guided the industry and protected consumers for so many years.

Regulators were asking the insurtechs to identify the specific laws or regulations that were blocking change and progress. The NAIC task force did not result in a uniform approach from the states on how to deal with the insurtech phenomenon.

Kentucky was the first state to create an insurtech regulatory sandbox, a structure that allows insurers to test innovations in a supervised environment. Other states would follow. Some took the position that their laws and regulations had the flexibility to allow the testing of new products without the need for a sandbox. Whether a sandbox state or not, many departments of insurance across the nation have a program in place to deal with insurtechs in their jurisdictions.

Recently, the New York Department of Financial Services appointed an executive deputy superintendent of research and innovation. After speaking with many U.S. insurance regulators, I can attest that their common view is that the state-based regulatory system is particularly suited to encouraging innovation, with each regulator having the flexibility to allow new ideas to flourish while maintaining consumer protection. Connecticut Commissioner of Insurance Andrew Mais told me: “It is important for regulators to maintain open relationships with innovators who may not have a deep understanding of the need for and the intricacies of insurance regulation. It is also important to develop the skill sets necessary within regulatory bodies, data scientists for example, that will allow for effective regulation of new products and services.”

No doubt that in 2020 we will see more insurtech initiatives, more partnerships and more innovation. Consumers will have more options and the insurance industry will have plenty of opportunities to test the question: Is regulation a barrier to or a facilitator of innovation … or is it something in between?


Best’s Review columnist Howard Mills is an independent senior adviser with Deloitte and a corporate director. He previously was superintendent of the New York State Insurance Department. He may be reached at

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