Regulatory Reform Could Save $6 Billion

Put 10 insurance executives in a room and ask them about the state regulatory environment. You’re likely to hear about slow turnaround times, delayed product launches and the complexity of the regulatory approval process across multiple states.

The American Council of Life Insurers (ACLI) and CSC brought insurance executives together in focus groups and followed up with a comprehensive survey of industry regulatory costs. The information collected became the foundation for the industry’s most comprehensive study on regulatory costs, “Economic Impact of an Optional Federal Charter on the Life Insurance Industry” (August 2005).

The study found that insurers expect to spend $11 billion on regulatory-related issues over the next decade. About $6 billion of those costs are directly related to efforts to meet multiple state regulatory requirements.

The study’s findings are based on responses to questions about regulatory costs posed to carriers representing more than 41 percent of the U.S. life insurance market (based on both premiums and assets).

“We put together an extensive survey and captured an incredible amount of detail around state-specific regulatory cases. We feel that the insurers have spoken with a clear voice: There is significant economic opportunity,” noted Bob McDonald, CSC’s principal researcher in charge of the study.

A special report in Insurance and Technology magazine encourages forward-thinking IT leaders to capitalize on reform opportunities by positioning themselves now, versus reacting to the changes that regulatory modernization will create. Here are three ways to prepare:

Anticipate Change

Strategic IT roadmaps should anticipate regulatory reform. Consolidation of current application portfolios and use of surround technology will reduce maintenance costs for current policies. Avoid reactive, “one off” approaches to regulatory requirements in favor of reusable approaches that focus on the core information, reporting and security domains.

Address Speed to Market

The OFC includes a “file and use” provision, effectively eliminating the regulatory approval time cycle that often delays new product introduction. By augmenting systems with new, more flexible rules technology and streamlining product development processes, carriers that choose the federal charter will be well-positioned to accelerate product introduction.

Plan for Distribution Flexibility

Becoming a federally-chartered institution changes the landscape for entry into new states and markets. Today, many carriers have compensation and distributor systems that stifle efficient and flexible producer service. CIOs need to take steps today to enable efficient distribution to new markets and accommodate the needs of new producers and distribution channels.

For more information please contact us.