Regtech: The Next Big Thing for Insurance is Already Here

By Burch LaPrade 

Insurtech – the application of technology to transform the insurance industry – is a broad field.

The lion’s share of attention within Insurtech focuses on high-profile startups which strive to disrupt the fundamental business models of insurance. Reimagining the agent distribution channel, exploiting digital platforms for customer interactions, leveraging new data sets for better underwriting decisions, employing blockchain in the claims process – all are hot areas of innovation which have attracted significant amounts of attention and investment.

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The viability of such new approaches as well as their ultimate impact, however, are very much an open question. Still, it is the one that everyone is asking.

Outside of mainstream Insurtech discussion and analysis, a set of newcomers with a different set of goals is also looking to make its mark. Classified as Regtech, this group seeks to improve, rather than disrupt, industry practices and operations, often by targeting behind-the-scenes systems.  
First, some background: what exactly is Regtech?
Regtech is the promise of leveraging technology to automate manual processes to improve compliance outcomes – both in terms of data quality and process efficiency.  

Insurers face myriad challenges in this area, from drafting error-free policies, to reporting consistent and accurate data, to managing their relationships with regulators. Notably, across the industry, carriers currently employ near-identical processes for handling these tasks. This creates an ideal environment for Regtech solutions to alleviate universal pain points.

However, unlike the “disrupters” – for whom there remains significant uncertainty as to the degree to which technology may be able to impact entrenched practices – Regtech’s value proposition is much more of a settled issue. Indeed, many Regtech startups are already finding market success.
Finding its fan base
With a straightforward value proposition, you might expect Regtech to be an area of universal interest across insurance.

Not so.

In reality, enthusiasm around Regtech is limited to a narrow audience. On the one hand, both the analyst and investment communities disregard it almost wholesale, as evidenced by the lack of even a single session related to Regtech at the three largest Insurtech conferences (InsureTech Connect, OnRamp, and DigIn) over the past two years.  For these groups, the excitement within Insurtech centers on the most visible opportunities.

Those who live in the world of compliance, on the other hand, assign Regtech much greater value. For example, the 2018 NAIC Insurance Summit featured a session entitled “Why Regtech Is the Next Big Thing”, and Deloitte recently published a white paper entitled “RegTech is the Next FinTech.”

In the gold rush of Insurtech investment – and, to be sure, it is a gold rush with cumulative venture investment in this area of approximately $10 billion in the past five years – Regtech is a picks-and-shovels story.  While the popular press closely follows the fortunes of the startups chasing the highest-profile opportunities, less mindshare is given to those who are building back-office tools focused on core, day-to-day insurance operations.

For those not directly tasked with compliance and reporting responsibilities, Regtech is generally viewed as abstract and uninteresting. For others who live in this world, though, the benefits are real, and the interest is genuine.
Use cases in Regtech:
By way of illustration, here are three sets of business processes which benefit today from Regtech innovation:

1.       Regulator Relationships
Business challenge: Insurers must be timely, accurate, and professional in all interactions with regulators. With numerous potential touchpoints, it can be challenging for compliance teams to coordinate responses, whether for a scheduled market exam or in direct reply to an ad hoc information request.
Regtech solution: Risk Priorities offers a purpose-built platform designed to manage the interactions between regulators and carriers. In addition to offering tools allowing for visibility of open issues and collaboration to achieve resolution, its solution also offers risk modeling dashboards and predictive analytics.
2.       Insurance Compliance Reporting
Business Challenge: Insurers struggle on several dimensions when drafting and filing reports for regulators. For example, as articulated in this white paper, a majority of Statutory Financial Filings do not comply with the NAIC guidelines and frequently record data inconsistently.  This challenge transcends any one, specific report type, and is compounded by the sheer volume of filings that insurers must often make.
Regtech solution: The manual processes which insurers currently employ can be automated through purpose-built reporting tools. These tools allow for collaboration across teams, data re-use across different filing types, and cross-checks and validations to ensure data consistency.

3.       Policy Administration
Business challenge:  the sheer volume of policy documentation, in combination with variable language across different policy types and coverage locations, creates significant risk for insurers regarding quality control and oversight.  The current tools to safeguard against mistakes rely on manual review, which is both inefficient and error-prone.
Regtech solution: Risk Genius leverages artificial intelligence to automate policy review. By focusing its machine learning algorithm on the language specific to policies, its solution improves compliance outcomes.

Outside of a select audience, Regtech does not command the popular mindshare of other Insurtech initiatives. Its goal is at once more straightforward and modest – to improve, rather than disrupt, the industry. As such, while higher-profile initiatives are closely followed and their ultimate potential is hotly debated, Regtech startups are already demonstrating their ability to execute on their mission to improve regulatory and compliance outcomes.

About the author: Burch LaPrade is a serial entrepreneur who has been focused on Regtech software for the past seven years. He is currently the CEO of Gain Compliance and is passionate about the potential for software to streamline arcane business processes such as regulatory compliance and reporting.