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May 2021

Regulatory considerations for digital insurance business models

Source: Asia Insurance Review | Apr 2021

Dennis NoordhoekThe COVID-19 pandemic and subsequent lockdowns have forced many insurers to accelerate the transition to digital business models. However, the crisis also highlighted the critical role played by national regulatory frameworks in both hindering and facilitating the shift to digitalisation in the insurance industry. The Geneva Association’s Mr Dennis Noordhoek explains.
Digitalisation is not a goal in itself, but a means for insurers and their customers to realise benefits that are particularly useful in situations where in-person interactions cannot take place. This played out in its fullest form during the COVID-19-induced lockdowns, as digitalisation drives an increase in speed and efficiency, irrespective of where the customer is located and promises improved customer service and satisfaction.
These benefits, however, can only be reaped if certain conditions are met. Regulatory frameworks and public policy play an important role in creating an environment that is conducive to digital insurance business models, rather than hindering digitalisation.
In order to understand the role and impact of regulation in digitalisation better, The Geneva Association conducted a survey of insurers in 16 countries and was able to identify specific regulatory barriers to the digitalisation of insurance business. 
Conduciveness to digital insurance business models
Insurers were asked to rank the factors most conducive to digital insurance business models, giving insight into the facilitating role of insurance regulatory factors versus other factors (Figure 1).
Conduciveness of regulatory and societal elements to digital insurance business models
Overall, government policies, digital infrastructure, privacy and data protection and the general culture and mind set of the population were not perceived as hindrances to digital business models. However, one third of the respondents said the insurance regulatory framework was unaccommodating and created barriers to digitalisation while one fifth said that regulatory/ supervisory authorities were unaccommodating to digital insurance models.
Although regulatory accommodations were made in many cases, concerns included a lack of flexibility in the application of existing regulations on affirmative consent (for electronic delivery) and insurance document delivery, the compulsory use of paper and in only permitting face-to-face sales practices for certain products.
Specific barriers to digitalisation
Paper document delivery provisions, insurance distribution regulation and medical exam requirements were the most frequently reported barriers, with 46%, 44% and 46% of participating insurers indicating these as issues, respectively.
Provisions around wet-signature requirements, or the inability to use electronic signatures, were also reported as a barrier by nearly 40% of respondents. A third of the respondents indicated that they faced hurdles to entering into insurance contracts digitally.
Figure 2 summarises the hurdles faced. Regulatory relief was provided in many jurisdictions and included measures such as easing wet-signature requirements, allowing electronic know your customer (eKYC) enrolment and digital execution of contracts and claims.
Reported regulatory barriers to digitalisation
Commercial and operational impacts
Nearly 60% of participating insurers were confronted with additional costs. These were not only related to enabling digital transition but also to regulatory and reporting requirements. Only a small proportion of respondents (14%) did not incur extra costs.
Over half of the respondents experienced foregone sales and 50% experienced an operational impact (23% moderate and almost 10% severe). Almost a third (32%) reported losing existing customers, albeit mostly to a very mild extent. However, at the time of the questionnaire, the full extent of commercial and operational impacts had yet to be seen as many will only fully materialise over a longer time period.
Main findings
  1. Insurance regulatory frameworks were perceived to be much less conducive to digitalisation than macro-level factors, such as government policies, digital infrastructure and local culture.
  2. The three most commonly cited regulatory barriers were paper document delivery provisions, a lack of telehealth provisions for medical exam procedures and insurance distribution regulation.
  3. Regulatory barriers to digitalisation resulted in additional costs for 60% of insurers during COVID-19 lockdowns, with 50% of insurers reporting lost sales and/or operational impacts.
  4. Engagement and cooperation between regulators and the insurance sector, and a technology-agnostic regulatory framework, were the two most common factors for conducive regimes. 
The findings point to the need for continued efforts to develop a regulatory and policy environment that is more conducive to the digitalisation of insurance. Regulators should adopt a technology-agnostic framework ready to accommodate future technological developments, and the regulatory relief provided during lockdowns to allow for electronic signatures would need to be made permanent, and potentially extended across product categories. More work is needed in the area of electronic identities, which requires efforts from both insurance regulators and the wider policymaking community.
Regulators and policymakers are urged to collaborate with the industry to identify hurdles to digitalisation and find ways to remove obstacles while still meeting regulatory objectives. Regulators are also encouraged to deepen exchanges among each other, including their peers in other jurisdictions, particularly those with a thriving digital insurance ecosystem, such as Singapore and China. A 
Mr Dennis Noordhoek is director public policy and regulation with The Geneva Association.
The issue brief is available for download here:
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