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    GAO Report Examines Regulatory Challenges Associated with Insurtech

    June 07, 2019

    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.

  • The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

    • To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
    • To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
    • To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
    • To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

    The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.


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    Effective Date: June 18, 2019

    Press Release
  • Proposed Rule 1
  • Proposed Rule 2
  • Proposed Rule 3
  • Presentation on Regulatory Framework (PDF)
  • Presentation on Resolution Plan Rules (PDF)
  • 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.


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    Keywords: Americas, US, Insurance, Insurtech, Artificial Intelligence, Cyber Risk, Cyber Security, GAO

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