When Insurance Innovations Outpace Regulations


It can be very challenging to innovate in an industry that’s heavily regulated. Regulation, while wholly necessary, is restrictive by definition. The cost of resources to maintain compliance with those regulations means there are fewer resources to be allocated for innovation investment. Also, breakthrough innovation may be hampered by a culture fostered from living within the confines of regulation.

The Inflection Point

Insurance companies have had to accelerate their digital agendas due to the COVID-19 pandemic. Now, applying conventional means for completing a sale, performing initial underwriting, presenting a bill and collecting a payment, or assessing a claim in the new normal of social distancing have presented themselves as legitimate challenges. This has led to the need to accelerate the digitization journey, despite the best efforts of individuals and companies to comply with safety precautions.

While many of the long-term impacts of the global pandemic on customer expectations will be unknown for some time, it is important to note that e-commerce has seen an uptick and continues to trend as such. This isn’t a blip in the short- or long-term; this is a paradigm shift. Consequently, insurers must reassess their methods of responding to this change in customer behavior and expectation. In order to get in front of this trend before it runs away from them, insurers must take this opportunity to analyze how best to position themselves to accomplish their innovation goals.

“This isn't a blip in the short- or long-term; this is a paradigm shift.”

However, instead of rethinking their entire business strategy and how to execute it, insurance companies have zeroed in on transplanting their existing practices onto a digital platform – and this is the rub. Current regulations were almost entirely legislated before modern technology was created. Without knowing the advantages realized from properly implemented technology, regulation can be stifling and a major reason for a lack of innovation. Though insurance regulation may be broad, it’s an important fixture in promoting public confidence in an industry that’s foundationally built on a commitment to executing a future obligation.

Fitting great technology into a regulatory framework is the challenge.

Innovation that Breaks Through

Heavily regulated industries experience breakthrough innovation via efforts made externally. The first wave of breakthrough innovation came from the emergence of insurtech organizations. These companies breathed new life into the insurance industry by allowing the traditional companies to reimagine what was possible. They were not hamstrung by decades of industry-specific conventional wisdom and the pervasive attitude of “if it ain’t broke, don’t fix it.” These insurtech companies had the freedom to set their starting point and springboard from there to find new solutions.

Achieving success in breakthrough innovation means regulations must be changed to reflect the new reality. And it takes time to get regulators comfortable that the policyholder benefit will simultaneously provide an advancement to the entire industry while maintaining an insurance company’s stability and security. To commit to achieving some type of breakthrough innovation is to commit to significant investment that requires appropriating ideas from other fields of business and partnering with insurtech companies.

Collaboration is the portal through which breakthrough innovation opportunities can be explored. Innovations get more regulatory buy-in when they are refined through industry groups, even more so when they would only require modification of existing regulation. While the initial wave of insurtech companies may have been a source of apprehension for existing insurers, the next iterations of insurtech firms have seen more partnerships formed.

“Achieving success in breakthrough innovation means regulations must be changed to reflect the new reality.”

The trials of reaching successful innovation in a heavily regulated environment can be conquered by analyzing what kind of innovation is needed and then formulating a proper strategy. A proper strategy should align the goals of the company with the backdrop of regulatory framework that can adapt.

We’ve entered into an exciting era, and we hope to see how the existing regulations of our industry will be used to foster further innovation.