Episode 29 – Regulation and Compliance Panel, “The Future of Insurance Regulations.”

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Beyond the Challenge is a podcast where executives in the insurance and financial services industry share their insights and experiences. Hosts Kevin and Sandy Dougherty talk with today’s top business leaders about what keeps them up at night and the biggest opportunity organizations can capitalize on today. We encourage you to listen, share, and subscribe to our program.

Kevin and Sandy Dougherty each have over 20 years of experience in insurance and financial services, corporate leadership, and executive search. They’re the owners of Global Corporate Solutions and Global Corporate Leaders. Global Corporate Solutions partners with organizations to gain efficiencies and contain costs. Global Corporate Leaders partners with organizations to enhance and evaluate talent.

Beyond the Challenge podcast is sponsored by Exactuals, perfecting payments and the data driving them.

Welcome to Beyond the Challenge. Here are your hosts, Kevin and Sandy.

Sandy: Welcome to Beyond the Challenge. We have spent the last year talking to some of the most influential and forward-thinking leaders in the insurance marketplace.  Their perspectives have been very well received by our audience and we thought it was time to put together some of our favorite guests to see what they thought about some hot topics.

Sandy: In this episode you will hear from David Levenson, President, and CEO for LIMRA and LL Global, Rino D’Onofrio, President and CEO RBC Life Company, Jon Stenberg, EVP, Individual Life for Symetra, Tom Hegna, President, TomHegna.com, and Bill Wheeler, President, Athene Holdings.

Kevin: During our interviews, we asked our guests what they thought about the future of insurance regulations and compliance as we know it today. Let’s start with what David Levenson had to say.

David: I left the insurance industry in 2012 when I ran the wealth management business for The Hartford, and compliance and the regulatory regime was pretty complicated then. It’s two to three times more complicated today. I think one of the most fundamental challenges is that there’s so many things to focus on, right? From a regulatory perspective. So, there’s privacy, there’s cybersecurity, there’s many new things that are coming out so you still have all the old things, now you have all the new things, and the regulators have to catch up. They have to catch up to, wow, zero interest rate potentially, right? Do our regulations reflect zero interest rate? Or cybersecurity wasn’t a concern 10 years ago, now it’s a huge concern. And then you compound that with the fact that you’ve got state regulation and federal regulation and international regulation. And while you have wonderful organizations like the NAIC that try to bring so much of this together, there are still a lot of states that wanna do things their own and for companies that operate in 50 states, it can become really challenging. So, the punch line is I don’t see it becoming less complicated over the next several years. I see it as complicated or more complicated and I think that’s a challenge for companies, especially small companies.

Sandy: David thinks that regulation and compliance is going to continue to get more complicated over the next few years. He thinks that there are so many thinks to focus on from a regulatory perspective that the regulations have to catch up.

Kevin: Some of the things he thinks will make it more complicated are, privacy, cyber security, and zero interest rates, compounded with state regulations, federal regulations and international regulations. He feels that new regulations could be especially challenging for small companies. Now it’s time to hear what Tom Hegna had to say.

Tom: I think they’re all going with the best interest. It’s gonna be some type of fiduciary standard. And everybody kind of points at the insurance industry that there were bad players that just sold annuities, that did bad things with insurance products. I can point to the investment side and show you many investment-type advisors who even claim to be fiduciaries who aren’t using annuities or long-term care or life insurance. They’re not fiduciaries, they’re fake fiduciaries. So I think, on both sides, the investment side and the insurance side, it needs to come together. And, again, let’s let math and science determine what the best course is, instead of having, you know, 50 different advisors with 50 different opinions. That’s not in the best interests of clients. So I think you’re gonna find things are gonna come a little tighter and whether a person’s in the insurance side or in the investment side, they’re gonna have very similar solutions because that’s what math and science dictates.

Sandy: Tom thinks that most regulation will be based on best interest for the client with similar regulations for both insurance agents and financial advisors.

Kevin: That’s right, he says “lets let the math and science determine what the best course is instead of having 50 different opinions of best interest.” Let’s see what Rino thinks.

Rino: Yeah, I mean, look, this is a very timely topic as well. Regulations plays a fundamental and active role in our future and, really, in all aspects of our business from beginning to end, from marketing and distribution through to claims and everything in between, back office operations, everything. Certainly a key focus of our regulators in Canada has been around fair treatment of customers, and while that is a focus for them, it’s also driven a bunch of other areas for greater oversight by our regulators and so that includes things like advisor compensation practices, accountabilities for oversight of distribution and licensing and so on. So those are some of the areas they’re focused on. I would say that it’s evolving as well, like some of the expectations of our regulators are very clearly defined, like around things like privacy, it’s very clear, or around licensing requirements, those are very clear requirements. And then there’s other areas like around technology or on data, around, say, use of artificial intelligence in underwriting or something. Those are areas where I’d say insurance companies are progressing ahead of specific regulations or guiding principles from the regulators. So I think what that does is it gives the companies in the industry an opportunity to work with the regulators, you know, in an effort to kind of drive a meaningful set of rules that for sure protect consumers, I mean, they have to be treated fairly, of course, while also allowing for innovation and, you know, within products and companies to meet customer needs. I’d say, as well, maybe the hands-on regulation. You know, in Canada, and, really, in most places around the world, no discussion around compliance is complete without mentioning IFRS 17 which is a huge change in the accounting regime globally and a significant focus on many, many insurers globally. The story is not written on that yet, it doesn’t come alive for about a couple of years now but I would say the implications of it could be quite far reaching. It could have significant impacts on the products and services that companies offer today. So those are some thoughts around regulation and compliance.

Sandy: Rino agrees with Tom that the focus of future regulations will most likely be around the fair treatment of the client.  He also thinks that we will see greater regulations around advisor compensation, oversite of distribution and licensing.

Kevin: What I found interesting was his remarks about regulations around technology, data and the use of artificial intelligence. It will be interesting to see how new regulations work with emerging technologies and new innovations. Let’s hear what Jon Stenberg had to say.

Jon: There are probably four key items that will be the focus of the ACLI and the regulatory bodies over the next few years and only one of them really will be heavily driven by the party leadership. The first is illustration regulations. That’s something that we seem to have trouble getting right as an industry and in cooperation with the regulatory bodies, making sure the illustrations are understandable and we reduce the risk of differences between what the illustration shows and reality in the future. The second will be racial inequity. It’s something that was, obviously, given the 2020 events, something that’s on everyone’s mind and certainly the regulators’ and so we wanna do and in working with the regulators is making sure that we do a good review to make sure there’s no bias and discrimination within our policies, particularly underwriting policies, without harming the very technology which is gonna help drive closing the coverage gap in the lower income population. The next is DOL, obviously. DOL is something that will be impacted by the party leadership. We don’t know if it will be Department of Labor but it’s something that looks and feels like DOL. We’re expecting a lot of conversation around that over the next four years and we wanna make sure that that work on the regulatory side does not harm and increase the coverage gap, which is, you know, is what we’re concerned about. And then, lastly, we really need discussions with the regulatory bodies around regulatory modernization where we need them to embrace innovation within our industry, we need them to give us relief on some things that, for example, force us to drive paper on one hand but on the other hand, we have environmental regulations and desires to be more efficient and better for the environment and digital is good for that and we have conflicting regulations and conflicting regulatory concerns in those areas. And so, modernizing our regulatory system is a conversation we need to drive to our regulators.

Sandy: Jon sees 4 key items that will be the focus of new regulations.  Illustration regulations, racial equality, best interests of the client, and technology.

Kevin: With Jon’s work with the ACLI, he has a front row seat to what the regulators are looking at.  He gave us a very detailed account of the “why” behind the regulations he sees coming up in the near future. Let’s see what our final guest, Bill Wheeler had to say.

Bill: Well, it’s probably not gonna get better. I don’t think we can count on it getting easier. Recently — I sit on the board of a company which does a lot of business in Europe called Athora and Athora has to implement something called IFRS 17 which is a new accounting pronouncement for European insurers and, you know, the estimate to comply with that for the industry is about 20 billion and they think bigger companies, it will cost them $200 million apiece to just comply with the new accounting reg and everybody involved sort of thinks this is a good idea, which is kind of amazing to me. So, that’s the attitude of the regulators is we are going to continue — and the accounting standards boards and all that, we’re gonna continue to tell you what to do no matter how much it costs, no matter how impractical it might seem. So, that’s tough. I think also, on the flip side, you know, something like the best-interests situation that the Biden administration seems to be reviving, you know, the industry had kind of prepared itself to adopt that anyway, you know, before Trump got elected and so I think having to go back and do it again, I mean, I think of our own situation, I don’t think we feel like it’s gonna be that big a deal to adopt but some of these regulations seem to be not very practical but sometimes I think they’re gonna be good for consumers and I think that’s a positive. So, it’s a mixed bag. And, you know, the industry is very engaged with the regulatory community and trying to push back, trying to get the regulators to the right answer, but it’s difficult.

Sandy: I loved the way Bill put it. He said “it’s probably not going to get better, and we can count on it not getting any easier”

Kevin: He does agree with most of our panel that Best Interest is going to be here to stay, and most carriers have been preparing for that to happen.

Sandy: One of the repeating themes I heard from many of our guests was that carriers need to plan for tighter regulations and that “best interest” regulation will be part of what is to come. 

Kevin: I really enjoy going back and listening to our past interviews.  I always find something new that I missed the first time and today was no different.

Sandy: I agree, I always pick up at least one more tip that I missed the first time.

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