While carriers already spend significant IT resources on regulatory compliance, the majority of respondents expect the cost of compliance to increase in 2014, according to a survey from Insurity, Inc., a provider of insurance software and services, and published as part of the Novarica Research Partners Program, which provides an opportunity for industry sponsors to underwrite surveys of insurer CIOs. The survey also found that while insurers expect business as usual when it comes to market conduct examinations and financial audits, they expect a great deal more scrutiny around their data and reporting.
Indeed, the majority of midsize insurers (annual premiums generally between $100M and $1B) that write commercial lines of business and utilize ISO in some fashion, place regulatory compliance in the top three strategic priorities for their company.
According to respondents, the main challenge in managing compliance is connected to the complexity of the evolving regulatory environment, making it difficult to do analysis and interpretation in a timely manner while also managing the sheer volume of required documentation.
Products and processes were cited along with complexity as the top challenges for remaining compliant. Overall, insurers see themselves as capable of handling day-to-day practices, such as data calls and stat reporting. But when it comes to keeping products up to date and verifying that workflows and processes are compliant, insurers have a tougher time.
“When senior insurance executives talk about their strategic goals for their company, they often refer to speed-to-market, agility, and the ability to rapidly respond to market changes. But regulatory compliance, a critical capability for an insurer, is also increasingly seen as a key strategic priority, not just a tactical process required to keep the lights on. An insurer that is able to rapidly and accurately respond to regulatory demands is also typically an insurer that is nimble at reacting to market demands as well,” said Karlyn Carnahan, CPCU, principal with Novarica and co-author of the survey report.
Carnahan continued, “For many midsize P&C insurers who rely on ISO to some extent, managing the analysis and interpretation of the circulars, as well as reporting, adds to the compliance load. The cost of handling compliance related activities is a significant portion of an insurer’s IT budget, and carrier expect the costs and the level of regulatory demands to increase in the coming year.”
The survey also asked several questions surrounding ISO use, finding that most insurers are substantially ISO for most lines of business, however only 20 percent of carriers are current on ISO with a majority having filings that are 2-5 years behind, and 20 percent of insurers five or more years behind.
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