2023 InsurTech Outlook: What to Expect in Regulation, Policy and Supervision? | Open Insurance latest news | SupTech in insurance

I′m Andres Lehtmets . Most of my life I have been involved in insurance policy making and supervision and am currently building consumer-centric and innovation-friendly regulatory and supervisory framework for InsurTech at the EU insurance watchdog EIOPA . I′m coming from e-Estonia which is world's most advanced digital society . Hence I can say I have seen and helped to build the future. Some parts of this future I hope to see in insurance services.

In this personal monthly newsletter I will share with you most recent InsurTech regulatory and policy insights in the EU and beyond.

Why should you care?

Because regulation can serve as an enabler by setting clear guidelines and standards that encourage innovation and competition, drive innovation by addressing market failures and promoting sustainability, consumer protection and level playing field. It can shape the future of insurance.

Form a broader perspective I hope those insights contribute directly or indirectly to good consumer outcomes and ultimately increase innovation and trust in our industry.

You might find those insights useful if you are policy maker, regulator, compliance officer, product builder, C-suite in insurance industry, VC investor focusing on InsurTech or just a fan of insurance.

Let me know your feedback and if you think your colleagues might also benefit from those insights please do share it with them.

Disclaimer: Views expressed here are my own.

EIOPA has published its work programme 2023-2025 . Under the twin objectives of ensuring consumer protection and safeguarding financial stability, EIOPA will pursue the six strategic areas.

Digital transformation will remain one of the key strategic priority for the EU insurance watchdog?EIOPA.

The aim here is to support the supervisory community and industry to mitigate the risks and seize the opportunities of the digital transformation, including by further promoting a data-driven culture.

More concretely EIOPA will strive to keep abreast with the latest financial innovations and digital trends, to continue to provide up-to-date supervisory guidance and good practices, while taking into account?ethical?and financial health considerations.

EIOPA’s main priority is to contribute to a safe transformation into a digitally resilient society and an operationally resilient industry, including through the implementation of?DORA.

Key areas of activity include:

• Develop a sound regime for the use of?AI?by the insurance sector
• Continue to promote financial inclusion
• Finalise the development of an?Open Insurance?use case and draw conclusions for an Open Finance framework
• Monitor market innovations and training of supervisors
• Review the Digital Transformation Strategy, integrating it with Data and IT Strategy,?SupTech?Strategy and partially also Cyber Underwriting Strategy
• Assess financial stability and systemic implications of?cyber?risk

The International Association of Insurance Supervisors IAIS?has released its 2023-2024 Roadmap . The IAIS will continue to respond to emerging and accelerating risks, challenges and opportunities facing the insurance sector. These include climate-related risks; cyber risk; operational resilience; digital innovation; diversity, equity and inclusion (DEI); financial inclusion and issues around conduct and culture.

Digital transformation, operational resilience and cyber risk continue to be at the heart of the work of the IAIS.

More concretely the IAIS will:

• review existing artificial intelligence (AI)/machine learning (ML) guidance from supervisory authorities and explore the need for the IAIS to develop global guidance for the insurance sector
• continue its ongoing monitoring of other FinTech-related developments, including application programming interfaces (API) and open data
• continue monitoring decentralised finance (DeFi), distributed ledger technologies (DLT), crypto assets and interlinkages with environmental, social and governance (ESG) objectives
• finalise the paper on Insurance Sector Operational Resilience which focuses in particular on?cyber?resilience, information technology third-party outsourcing and business continuity management

Efficient and integrated?financial markets, the free movement of capital and digital transition are essential for economic growth and recovery. According to the work programme European Commission will bring forward following major proposals important for the?financial services.

• A package of measures to facilitate retail?investment
• Data access in financial services will be further improved with an initiative for a framework on?open finance?and revision of EU rules on?payment?services
• Digital Euro?proposal to strengthen the role of the Union’s common currency

There are some other interesting initiatives planned that are not directly related to financial services as such but can have an impact.

• Initiative on virtual worlds, such as?metaverse
• A common European?mobility?data space to boost the digitalisation of the mobility sector and encourage innovative solutions (might be especially interesting from?insurance?perspective)
• Cybersecurity?Skills Academy

It is important to note that the first half of 2023 is the last window for the Commission to propose legislation that could make it through the European Parliament and Council and into law before elections in 2024.

Supervisory technology or SupTech is the use of technology by supervisors to?deliver innovative and efficient supervisory solutions?that will support a more effective, flexible and responsive supervisory system.

The Coronavirus pandemic has put technology in the spotlight. Supervisors are increasingly using new technologies in their supervisory work. This helps to improve supervisory practices and promotes early identification and understanding of risks.

If you are interested in practical SupTech use cases across the globe then read recent Financial Stability Institute (FSI) Insights on SupTech in insurance supervision which is citing concrete examples of how suptech tools are used by 22 insurance supervisors, from both prudential and conduct perspectives. From the EU perspective you could also find interesting EIOPA SupTech Strategy .

Shifting from open banking to open finance

Recent OECD report analyses the different types of data sharing frameworks currently available in OECD and non-OECD member countries.

It examines the specific rules and conditions of such frameworks around data access and sharing, consumer safeguards, and operational and technical specifications.

It also discusses learnings from existing frameworks on the impact that such arrangements have had on customers and financial markets.

The report is based on the results from the 2022 OECD survey on data sharing frameworks.

Compulsory reading for all who are interested in the future of financial services.

Engineering Personal Data Sharing

The European Union Agency for Cybersecurity (ENISA) recent report attempts to look closer at specific use cases relating to personal data sharing and discusses how specific technologies and considerations of implementation can support the meeting of specific data protection.

After discussing some challenges in (personal) data sharing, this report demonstrates how to engineer specific technologies and techniques in order to enable privacy preserving data sharing.

More specifically it discusses specific use cases for sharing data in the health sector, with the aim of demonstrating how data protection principles can be met through the proper use of technological solutions relying on advanced cryptographic techniques.

Next it discusses data sharing that takes place as part of another process or service, where the data is processed through some secondary channel or entity before reaching its primary recipient.

Lastly, it identifies challenges, considerations and possible architectural solutions on intervenability aspects (such as the right to erasure and the right to rectification when sharing data).

Quite technical but interesting reading and while the focus is on health sector those principles are also applicable in insurance and pension sector.?

Open Insurance in the IAIS Report on FinTech developments

Recent IAIS report presents the outcomes of exploratory, deep dive assessments into three topics: Use of application programming interfaces (APIs) and open data; distributed ledger technologies (DLTs) and blockchain; and safe, fair and ethical adoption of artificial intelligence (AI) and machine learning (ML) and the use and governance of data.

BaFin on open insurance

The Federal Financial Supervisory Authority (BaFin) has set out their conditions for the successful implementation of open finance from a supervisory perspective.

1. Definition of “open finance service provider” and possible authorisation requirements for open finance service providers
2. Level of standardisation and interoperability of technical interfaces and the standardisation of data
3. Preventing supervisory gaps in light of the different competences of the relevant authorities
4. Reciprocity for access to data and/or potential pricing for access to technical interfaces and/or data

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