One of the featured top 10 InsurTech Influencers in our March Insider Magazine, Hesus Inoma interviews Ciara O’Grady, a Senior Manager on the Risk & Regulation team at Deloitte about her views on the InsurTech regulatory landscape.
Have you seen any significant change in regulatory landscape that could help accelerate the growth in InsurTech?
I don’t necessarily think that there has been a significant regulatory change that would trigger immediate accelerated growth in the sector, however I do think there has been more of an appetite by regulators to engage with new entrants using new technologies to promote new insurance service offerings and existing players utilising technology advancements to offer their services and enhanced dialogue between regulatory authorities and Fintech firms.
While I don’t think that the Irish regulator has taken a stance one way or another on whether Fintech is good or bad for the sector, what I have found helpful in supporting my Fintech clients is that the Central Bank of Ireland (CBI) has stated what they perceive the benefits and risks posed by the Fintech industry generally to be. In doing so, it gives firms an opportunity to liaise with the CBI directly, on what the perceived risks are, and to be able to directly address how they will mitigate these risks through their proposed solutions. I would encourage every InsurTech business in the industry to read this document and map any of the perceived risks to their business, as appropriate.
Do you feel that this is an important advancement?
I think this is a really important and helpful advancement for firms seeking authorisation in Ireland, given the risk-based regulatory approach of CBI. In order to carry out regulated activity, the proposed firm must reassure CBI that they are capable of complying with the regulatory obligations imposed on them and most importantly that they are able to carry out the business in the best interest of the customer and are able to manage their risks appropriately.
For a new entrant technology business in the financial services sector, their concern is usually not that they need to be regulated, (in fact many firms want to provide that security to their customers that they operate in a highly regulated environment) it is the unknown of what they need to do to get regulated and what the regulatory expectation is of their business. Key to bridging this gap is enhanced dialogue between the industry and the CBI and awareness of the risks posed by the industry and appropriate mitigation of those risks.
What areas do you see there being immediate value in the short and medium term?
For me the key point in this question is the immediate and short term. In order to generate meaningful value and market share, the solution needs to be simple and customer centric. The most adopted technology to date by existing firms has been robotics. Robotics has generated value through the automation of processes and digitalisation of customer sales. This is likely to see enhancements in the quality of complaints and error management, claims handling, record keeping and more transparent and meaningful information disclosure to customers. Not without its risks, the automation of these simple tasks means that resources can be more valuably spent where there is more friction in the customer engagement and to more smoothly iron out issues that require, for the moment, human intervention.
In addition to the above, a particular special interest of mine is the appropriateness and suitability of products being sold to customers. It’s an area that firms continue to get wrong and is, in my opinion, the backbone to consumer-related financial services regulation.
IoT generated data and behavioral analytics can go a long way in helping financial services providers to make a more meaningful, accurate and even predictive assessment of suitability and/or appropriateness of products for the customer. While, it does require a little more intrusion into personal data, if the customer is so inclined to share it, it enables a more accurate assessment to be done. The data sets that are collated can also be used to inform new prescriptive product governance requirements (see Insurance Distribution Directive) around product stress-testing and sales outside of target market.
Like all new technologies, yes they do pose new risks, but all of these risks can be managed and mitigated as long as they are identified and the benefit that can be brought by the customer centricity of the offering, goes a long way towards protecting the customer.
What are the biggest challenges you see the industry facing when implementing InsurTech solutions apart from their legacy systems and culture?
There is not, nor should there be, different rule sets for technology driven financial services businesses versus existing, more traditional, financial services businesses. While newer regulations and legislation take account of technology developments and seek to address risks posed by same, older legislation and regulation is written on the basis of the product or service that is provided. Its application to InsurTech businesses may vary but firms will need to work through its application to their solution, conscious of what the regulatory/ legislative objective actually is. This is not an insurmountable task and as long as a firm can understand what those objectives are, ensure that they meet the regulatory expectation and are customer centric in their approach, this exercise will add huge value to the firm’s business model, will enhance the trust in their relationships with customers, counterparts and the regulator and will make their go to market strategy a lot more achievable and viable. I hate to sound clichéd, but regulation need not be viewed as a barrier to growth or innovation and should be viewed as a key, value adding tool in product development and distribution chain.