Innovation Versus Regulation: A Proper Balance

As Iowa’s Insurance Commissioner, I meet with many innovators whose work impacts the insurance industry. A major topic we discuss is the continual debate of innovation versus regulatory oversight. 

This debate will be front and center during the Global Insurance Symposium in Des Moines federal regulators, state regulators, industry leaders and leading innovators will come together for discussions on the right way to bring innovation into the insurance industry.

 I see three schools of thought in the debate of innovation versus regulatory oversight:

1. Those that want nothing changed. They feel insurance regulation has worked for over 150 years so why change what is working.
2. Those that suggest oversight by insurance regulators isn’t needed because new innovations and market forces don’t require the same type of scrutiny that regulators have performed in the past.
3. Those that feel regulations and oversight are needed, but should move quickly to keep up with emerging technological developments.

Innovation is happening and regulators realize it. No one, including regulators, can stop technological advances. Luckily, I have found that my colleagues regulating the insurance industry are desirous to see innovation succeed because it will generally enhance the consumer experience. The focus of regulators is to enforce the laws in our states and to protect our consumers. It is that constant focus that ensures a healthy and robust market.  That focus even allows the market to work during an insolvency of a carrier, as Iowa witnessed recently during the liquidation of CoOportunity Health.

But wanting to work with innovators doesn’t mean insurance regulators are going to turn a blind eye to how innovations within the industry and new technologies are affecting consumers. I do not believe the fundamentals of the business of insurance need to be disrupted.  Innovations within an industry that is highly regulated, complex and vital to our economy and nation needs to be done within the confines of our regulatory structure.  Innovators attempting to disrupt the insurance industry outside the bounds of our regulatory structure and not following state regulations will likely face significant problems.

So, just as Goldilocks found the best fit at the home of the three bears, insurance regulators are working diligently to find the best fit of proper regulation to protect consumers for new innovations and technology affecting the insurance industry.  Regulators want the business of insurance to continue to innovate and adapt to meet customer needs and expectations.  For instance, improving the customer experience through technology, quicker underwriting and increasing efficiency would add to the value of insurance for consumers.  I know many smart people are working on creative projects to do these types of things and much more.

The complexity of the business of insurance is arguable becoming less complex because technology simplifies and evens out the complexity. Many existing insurance companies will face challenges as data continues to be harvested and used and digital opportunities become more obvious. The continuous innovation in the industry is both positive and exciting. 

However, insurance carriers today face incredible issues and therefore the regulators that supervise these firms must clearly understand the complexity of the industry and external factors that weigh upon the industry.

A few issues that industry participants must deal with:

• Perpetual low interest rates making it difficult for insurers’ investment yields to match up with liabilities.
• Catastrophic storms that may wipe out an entire year's underwriting profit in a matter of hours.
• Increasing technological demands within numerous legacy systems.
• International regulators working towards capital standards that may not align with the business of insurance in the United States.

I believe regulators, insurance carriers, and innovators can work together to harmonize and streamline regulations in an effort to keep up with market demands, but the heart of insurance regulation beats to protect consumers and regulators will never concede the need for that. Compromising on financial oversight and strong consumer protections is not up for negotiation.  Ensuring companies are properly licensed and producers are trained and licensed is critical.  Ensuring companies maintain strong financial position is equally critical.  

Innovators wishing to bear risk for a fee or distribute products to consumers will need to comply with insurance law. Additionally, innovators looking to do a vertical play into the industry through a creative service, model or underwriting tool need to make sure they do not run afoul of legal rules and provisions that deal with discriminatory pricing and use of data.  It is a lot to absorb for an entrepreneur, but it is not impossible and the up side may be very well worth it.   

I absolutely encourage companies looking to innovate in the insurance industry to proceed, but to do so both with understanding of insurance law and the role of the regulator, and with strong internal compliance and controls. Innovators and entrepreneurs that proceed down that path will most likely have regulators excited to see them succeed. 

Insurance is still a complex industry. Can and should it be made simpler?   Yes, and I believe through innovation and continued digital evolution it will.  Should the industry focus on how to continue to enhance consumer experience and put the consumer in the center of everything?  Yes, and I know that is occurring now through many new ideas and businesses that are beginning and evolving. 

I know we will continue to see incredible innovation that benefits consumers, companies and even regulators. Insurance at its core is a business of promises. It is an industry that has passed the test of time and I believe through innovation and continual improvement it will remain strong and vibrant for the next 100 years.   

If you are an innovator or entrepreneur and looking for a program to learn how to address insurance regulatory issues within your business, and the role of a state insurance regulator I would again encourage you to attend our 3rd Global Insurance Symposium in Des Moines, Iowa.  This is the first conference where innovation and regulatory issues truly converge.  This is your opportunity to learn from state insurance regulators, the Federal Reserve, the US Department of Commerce, seasoned insurance executives, start up entrepreneurs (the second class of the Global Insurance Accelerator will have a demo day for the 2016 class), venture capital investors and leading innovative thought leaders.  No other meeting has assembled a group like this.  Everyone will benefit from the unique learning experiences but, more importantly, unique new relationships will emerge.  Register today!