ISLF Coverage: The Compliance Conundrum

Regulatory compliance has traditionally been strictly a burden, but now it represents an opportunity, said Matthew Josefowicz, the New York-based manager, insurance group, Celent Communications, speaking at the Insurance Standards Leadership Forum, produced by Insurance & Technology and ACORD, on Sept. 30 at the Roosevelt Hotel in New York City.

"For a long time compliance has been a necessary evil of insurance operations -- it's what you do to say out of jail," Josefowicz said. "But what we're seeing now is the intersection of compliance and business value, which is an interesting development that the industry is poised to take advantage of, and one where standards play a key role."

If one examines the principal laws and regulations affecting the insurance industry, Josefowicz asserted, it can be seen that their demands affect four areas: data and network security, data integrity, operational transparency and record retention and accessibility. "What the regulations and statutes are actually asking you to do is maintain customer data privacy, make sure you know your customer, make sure that your financial reporting is accurate, make sure your state filings are accurate and up-to-date, and make sure that your licensing and various HR issues are up-to-date," Josefowicz added.

Traditional technology-associated problems, such as a lack of accessible systems, poor data integrity, and a lack of accurate, consolidated records that are easily retrievable, it is impossible to have accurate business analysis and planning, accurate financial analysis, and effective service to customers and distributors, Josefowicz argued. As a consequence, he said, "What's happening for the first time is that compliance challenges and business challenges are dovetailing."

Session panelist Carol M. Chapman, financial reporting compliance specialist, American National Ins. Co. (ANICO; Galveston, Texas), said that her own role has been shaped by both business and compliance demands to access information from disparate systems across the enterprise. "The drive for getting that information easily accessible to our business community was very important," she said. "Wrapping it inside compliance ... forced us to re-examine our business engineering and our systems models."

Insurance companies are no longer "just insurance companies" but are part of more complex financial services companies, contributed panelist Ellen C. Walsh, partner, insurance regulatory compliance services, PricewaterhouseCoopers (New York). "That complexity, as it's grown over the years, has presented the compliance officer and business leaders with a host of additional challenges," she remarked.

A decade ago, forward-thinking compliance officers "went through great pains in pulling together data from disparate systems and trying to pull them together into some kind of dashboard surveillance report," Walsh said. And while those reports took weeks to assemble and were of less-than-perfect accuracy and completeness, they were viewed as a "great best practice," she added. "But now it's a cost of business."

For too long, said ANICO's Chapman, companies have solved problems by simply installing new systems. "Can't afford to put a product up on an old system? We'll pick up another; we'll do it with acquisition, we'll slap on two, three hundred hard-coded interfaces -- and that's just on one of the legacy systems," she commented. Fortunately, Chapman suggested, the resulting complexity can be addressed by data transfer standards. "That's why I'm so gung-ho about data transfer standards: Its' being able to take the 'Greek' of one system, the 'Italian' of another, and the 'English' of another and translate them to be able to pass the same information everywhere," she said. "That's the only way we're going to be able to get consistency, not just for Sarbanes-Oxley, but for our own internal profitability."

In response, Celent's Josefowicz remarked that while ACORD has focused much of its messaging on an "external" message about industry co-operation and sharing data between counterparts and partners, the insurance standards organization has worked diligently on standards that enable internal information exchange. "Our clients and many of the people we talk to when we're conducting surveys speak about the internal value they're getting from ACORD standards, in terms of being able to share information more easily between applications, for reasons relating to both compliance and operational effectiveness," he said.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio