GAO Report Examines Regulatory Challenges Associated with Insurtech
U.S. GAO published a report that examines the benefits and challenges presented by innovative use of technology by insurers. The report identifies new uses of technologies and examines potential benefits and challenges of these technologies for insurers, consumers, and regulators. The report also discusses what stakeholders identified as key challenges that could affect the adoption of new technologies and actions taken to address those challenges.
GAO was asked to provide information on insurtech activities in the property and casualty and life insurance sectors. GAO reviewed available literature, analyzed relevant laws and regulations, and conducted interviews with more than 35 stakeholders, including federal and state regulators, technology companies, insurers, and consumer groups. Stakeholders with whom GAO spoke identified challenges that might affect adoption of innovative technologies. Some stakeholders have raised questions about how certain uses of insurtech could create both risks for consumers and challenges for regulators; another concern is that some of the challenges might slow technological innovation in the insurance sector. The identified challenges include paper-based documentation requirements that do not accommodate online insurance transactions and challenges for regulators in the evaluation of complex rating models.
The National Association of Insurance Commissioners (NAIC), state regulators, and others have initiated a number of actions designed to address industry and regulator concerns associated with insurtech, including any insurance rules and regulations that could affect insurers’ adoption of technologies. Since many of these regulatory initiatives are still in development (or recently developed), their effect on innovation and consumer protection is unknown. It will be important for NAIC and state insurance regulators, as well as the Federal Insurance Office, to continue monitoring developments in these areas. The actions taken by these entities address challenges in areas including evaluation of underwriting methodologies, approvals for new insurance products, customer notification methods and time frames, anti-rebating laws, cyber-security, and regulator skillsets and resources. The following are some examples of the actions that have been initiated:
- State insurance regulators, through an NAIC task force, have been examining regulatory areas that may pose obstacles for innovation, such as requirements for paper documentation or signatures.
- NAIC issued draft best practices for states to use when reviewing complex rating models.
- NAIC adopted a model law that creates a legal framework for states to use to require insurance companies to operate cyber-security programs and protect consumer data.
Specifically, NAIC adopted a model law and states have passed new laws governing cyber-security and data protection to safeguard the increasing amount of personal data used by insurers. In 2017, NAIC had approved the Insurance Data Security Model Law, which outlines planned cyber-security testing, creation of an information security program, and incident response plans for breach notification procedures. The NAIC model law is only a guideline until adopted by individual states, but NAIC noted that in 2018 and 2019, Michigan, Ohio, Mississippi, and Alabama adopted laws based on the NAIC model and additional states have pending legislation.
Related Links
Keywords: Americas, US, Insurance, Insurtech, Artificial Intelligence, Cyber Risk, Cyber Security, GAO
Related Articles
ECB Allows Temporary Relief in Leverage Ratio Amid COVID-19 Pandemic
ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.
ESAs Launch Survey on Templates for Product Disclosures Under SFDR
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB Proposes Integrated Reporting Framework to Reduce Burden for Banks
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
ECB Finalizes Methodology to Assess CCR and A-CVA Risk of Banks
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA Provides Opinion on Definition of Credit Institution in CRR
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA Consults on Alignment of Daily Liquidity Report for Banks
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED Releases Scenarios for Second Round of Stress Tests on Banks
FED released hypothetical scenarios for a second round of stress tests for banks.
FED to Temporarily Revise FR Y-14 Reports to Conduct Stressed Analysis
FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.
FED Revises Information Collection Under Market Risk Capital Rule
FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).
EBA Seeks Input on ESG Disclosure Practices of Banks
EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.
