Transform Compliance from Cost to Competitive Advantage

Every insurance carrier has a regulatory compliance process. For most companies, the process of updating rates, rules, and forms is often seen as merely table stakes: something that simply needs to get done. However, a growing number of carriers are viewing compliance as a strategic endeavor and an opportunity to create competitive advantage.

Leveraging best practices in compliance, including partnering with compliance services that specialize in analyzing the complexity of regulatory changes and their impact on systems and books of business, allows carriers to maximize the speed and minimize the costs of keeping current. Companies that capitalize on those compliance practices can shorten their time to market with updated products and pricing. Ultimately, those carriers can transform compliance from an administrative task to a strategic process.

Complexity Leads to Challenges

It's easy for carriers to underestimate the full scope of time and effort needed to remain in compliance because, for many years, changes to ISO and other forms were relatively small and routine, presenting few challenges for most companies to implement. However, that is no longer the case.

Keeping up to date with regulatory changes has become increasingly difficult for the staff charged with the responsibility of currency. Large countrywide and state-by-state changes with significant impact to rates, rules, forms and statistical coding have been the rule in recent years. Before any change can be made, it must first be analyzed and interpreted to determine its impact on the company's book of business as well as the technology solutions supporting these needs. These challenges are compounded for carriers with policyholders doing business in multiple states.

Dorrie Pighetti, Insurity

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Unfortunately for time- and resource-strapped carriers, the complexity of change has dramatically increased the amount of staff resources that need to be applied to maintain regulatory and ISO compliance for existing and new products. According to research by Novarica, just 20% of carriers are current with ISO filings, and the majority of companies have filings that are anywhere from two to five years behind current version.

Out-of-date filings create several problems. Carriers that are not using the most current rates, rules, and forms may find themselves at a competitive disadvantage compared to other companies that are. The further a company falls behind, the harder it is for them to catch up, because the impact of a change that spans several versions of filings can be quite significant. Carriers may have to adopt transition rules just to be able to manage the migration from old to new rates, which adds to the complexity of change. Also, since forms are a legal contract, it is important that carriers are using the most current version of forms that reflect the latest impact of case law.

The cost of currency and other compliance-related activities also claim a significant portion of a carrier's budget. Novarica reports that, on average, 10% of a carrier's IT expense is attributed to compliance-related activities. The biggest component of that expense is the staff time required to analyze regulatory requirements and make the relevant changes to products and systems. The cost is often higher at carriers that use legacy systems requiring coding changes rather than simple configuration.

Alleviating the Burden

Carriers do not have to take on the regulatory burden alone. More and more carriers--particularly those with limited in-house expertise, internal resource constraints, or complex books of business--have identified the best practice of utilizing third-party compliance services.

These services are a proven option that can monitor regulatory changes issued by ISO, state insurance offices, and regulatory bureaus. They can also analyze how these changes affect the carrier's current software applications and provide software updates. These services are particularly important for carriers with legacy or highly customized systems.

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Not only do compliance services help carriers reduce the financial risks of noncompliance but, more important, they enable carriers to change compliance from a cost to a competitive advantage. By transferring much of the burden of keeping current with ISO and other forms, rules, and rates to a service, carriers can reallocate internal staff resources to other strategic initiatives, such as analyzing their marketplace to identify ways to use or deviate from filings to gain an edge in pricing or positioning. By maintaining currency, carriers also avoid the need to make the large, disruptive changes that are required when long-outdated forms are updated.

Responding rapidly and accurately to regulatory changes and demands is also a quality that defines a carrier that is nimble at reacting to--and anticipating--market changes. In an environment where speed to market is essential, this rapid response enables carriers to avoid adverse selection and other problems associated with out-of-date filings and positions companies to best serve their policyholders and agents.

About the author: Dorrie Pighetti is chief insurance officer for Insurity, leading the executive consultants team. She can be reached at [email protected].