by Charles Sybert with Annelyn Danugrao –
I have the most challenging time explaining to anyone, especially my 95-year-old grandmother, what my Insurance digital solution delivery executive profession is. I have tried, “I work with computers or help insurance companies be better,” which usually results in responses like “I have this issue with my policy, or I didn’t get what I wanted for my accident.” What has worked well often is “my team creates the stack of paper that comes with your insurance policy,” except when I get the, “oh, you do the printing. . .” reaction.
In similar fashion, when you mention that stack of paper or forms and regulations to a C-level insurance company executive, you most likely will get a shrug of the shoulders as this is thought of as tactical, just regular day to day part of doing business. But when you mention the phrase out of compliance, or words like DOI, or regulatory, you will get a look of fear and sometimes panic as it can translate to fines from regulators or pose legal challenges.
Insurance Governing Bodies
According to Insurance Information Institute1, over $1.4 trillion of insurance premiums were written in 2021. The public’s trust placed in the insurance company is monitored and governed by the National Association of Insurance Commissioners (NAIC)2 and each state’s department of insurance (DOI).
NAIC was established in 1871 to assist state insurance regulators by setting standards and best practices and acts as a forum to exchange information, provide regulatory support functions, and educate consumers on the U.S. insurance market.
The DOI’s responsibility is to enforce each state’s insurance laws as set by each state’s legislator, reviewing rates to ensure adequate, non-discriminatory, and not excessive to protect the public. In addition, the DOI provides state required language, forms, coverages, minimum guarantees, and cancellation rights by the line of business to help consumers understand the insurance policy.
Managing the Complexity
Instead of each insurance company developing a relationship with each regulator and working with filings, the concept of Insurance bureaus was developed. The primary purpose of the insurance bureaus is to serve as the intermediary between regulators and insurance companies to file a product and associated coverages keeping up with the trends in the industry. In addition, the bureaus provide a value add to the insurance companies by aggregating data and analyzing industry trends to offer insurance rates, rules, loss cost, and policy language that insurers use as the basis for their products. There are four main types of bureaus:
- Insurance Services Office (ISO)3 – an insurance advisory organization that provides statistical and actuarial information for commercial and personal property & casualty insurance
- American Association of Insurance Services (AAIS)4 – a national nonprofit advisory organization governed by its member companies focusing on commercial and personal lines, inland marine, farm, and agriculture insurance.
- National Council on Compensation Insurance (NCCI)5 – focused on workers compensation line of business in the non-independent or monopolistic states
- Independent State Bureaus – states that are not covered under NCCI focused on workers compensation
Compliance Maintenance Tips
The pace and volume of change can quickly become overwhelming, with one bureau like Verisk can issue over 75 circulars a week. The goal of remaining current is challenged by the number of lines of business, deviations from admitted standards, and the pursuit of delivering the change before the renewal quote dates. While the challenge is sizable, it can easily be overcome with focused efforts.
Understand the change
Triage the circular to understand if it is in scope, level, and type of change. If a complex change, use a detailed analysis template, determine the requested change, and design the solution. For simple changes, gather requirements and implement them directly into the system.
Impact on the base system
Determine how the change will be implemented within the base system in a generic but still compliant manner. This may require setting up a user group to review and agree to the change and method of implementation.
Impact on customer deviations
Analyze the prior customer customizations and deviations to determine if any changes are to be implemented.
The change volume can quickly overwhelm an organization and be further compounded by the number of lines of business, deviations, system customization, and the goal of ensuring implementation before renewal quoting guidelines. In addition to routine maintenance, there are significant regulatory changes, such as multi states which rewrite programs with a substantial impact on the policy administration system. Looming over the implementation effort is the threat of non-compliance, which can result in heavy fines and customer dissatisfaction. Ensuring prompt and effective implantation requires five pillars of action.
The implementation effort needs to be treated like a factory, with each circular becoming a singular work item requiring analysis, implementation, testing, and deployment. A manager must oversee the work efforts are appropriately logged, triaged, prioritized, and implemented with a continued focus on quality and delivery date commitments. When a delay arises, the manager must quickly analyze the cause of the delay and make process improvements rapidly.
The team, from analyst to developer to QA to leadership, needs to have a depth of experience in the line of business and an understanding of the system’s capabilities. The team can quickly and effectively analyze the change to determine the impact on the system and business processes. A skilled team can adequately align the system with the desired compliance outcome within the SLA.
An investment into automation will improve the teams’ on-time performance capabilities and increase quality by offloading the more straightforward tasks to a digital bot combined with artificial intelligence and machine learning. A bot can be set up to extract the circular from the various websites, extract the circular to understand which portions are rate or LCM updates, extract the necessary values from the circular and then upload them into the system.
Data Driven Automated Regression
Regulatory updates cause the system to be in a constant state of change which is further compounded by system enhancements and customizations changing functionality. The best method of test coverage is to use data driven automation that will fully exercise the calculations of all coverage options and combinations, validation of the output, and other key functionality.
Data Sensitive Testing
Testing the effective date of the circular’s impact on the system behavior with new business and renewals. This becomes even more important when multiple circulars are stacked upon each other to ensure the system provides the proper behavior for the given effective date.
The complexities of maintaining compliance with an ever-changing regulatory environment coupled with the business desire to deliver innovative and market leading products can quickly become overwhelming, especially considering the project does not have an end date. Compliance efforts are a unique program that requires strict project management of highly skilled resources to ensure proper implementation of the change and new products.
At RCG, we have built an offering focused on meeting the compliance needs of the most challenging environments with a skilled On/Offshore team with experience in all major bureaus and lines of business.
Learn more about our Insurance outcomes.
1. Insurance Information Institute "A Firm Foundation: How Insurance Supports the Economy" Retrieved from https://www.iii.org/publications/a-firm-foundation-how-insurance-supports-the-economy/introduction/insurance-industry-at-a-glance
2. NAIC https://content.naic.org/
3. Verisk https://www.verisk.com/insurance/brands/iso/
4. American Association of Insurance Services https://aaisonline.com/
5. National Council on Compensation Insurance https://www.ncci.com/pages/default.aspx