A Tech Moment

The day-to-day work of the NAIC, during which regulators talk the nitty-gritty of actual regulation, is done in its countless committees and working groups. And, more and more, interest is growing in how technology issues—insurtech, big data, cyber, etc.—affect insurance markets and consumers.

The NAIC has had standing working groups on big data and cyber issues for several years now. Under NAIC president and Wisconsin commissioner Ted Nickel, these groups were reorganized this year into the Innovation and Technology Task Force. The new task force’s mission is to provide a forum for discussing innovation and technology in the insurance sector, to monitor technology developments affecting the state insurance regulatory framework and to develop regulatory guidance to assist states in addressing the new paradigms and assist stakeholders in compliance.

Working groups on big data, cyber, speed to market (which deals with electronic filings) and the sharing economy were all active at the NAIC’s recent meeting in Denver. This can be good and bad, of course.

With respect to the Cyber Working Group, for instance, the regulators are on the third draft of a cyber-security and data breach notification model act. While The Council likes the idea of a national, uniform approach to cyber-security and data breach notification, the issues are difficult, and the current draft of the model raises many concerns and potential problems. Likewise, the Big Data Working Group has raised issues that make many carriers uncomfortable. So, with the potential good come potential problems. But the discussion is important, necessary and well under way. 

NAIC as Technology Company

The NAIC views itself—in some ways—as a technology company. The association has the hardware, software, personnel, budget and data to make it the largest repository of insurance financial regulatory information in the world and to serve as a major source of assistance to the states in their regulatory missions. The NAIC collects financial data for the states from every insurer authorized in the U.S. It also provides back-office technology and support to state insurance departments through its “State Based Systems” initiative and maintains electronic platforms for policy filings, rate and form review, and producer licensing. 

Insurtech Thought Leader?

The NAIC and its members recognize they are not necessarily prepared to regulate the ever-evolving ways in which insurers and producers do business and engage consumers. This is especially true with technology and insurtech.

The association’s Center for Insurance Policy Research (CIPR) publishes studies and organizes events designed to educate state, federal and international policymakers, consumers and industry stakeholders to enhance “intergovernmental cooperation and awareness, improving consumer protection and promoting legitimate marketplace competition.” 

In the last year, CIPR has held several tech-centric events:

• A “Technology and Insurance” program focused on the problems and opportunities presented by bitcoin and blockchain technology in the insurance industry
• A “Sharing Economy” webinar on the disruptive innovation caused by the evolving sharing economy and the resulting regulatory issues that are part of the new market approaches
•  A “Meeting the Challenges of Innovation” program on insurtech trends and the role of regulation in insurtech. Interestingly, but perhaps not surprisingly, industry thought leaders who participated agreed the regulator’s role should be as an objective evaluator of innovation, and regulators were urged to use reasoned, clear processes to evaluate the impact of insurtech innovations on companies and consumers without prejudging or unnecessarily tying the hands of industry innovators. 

In Denver in April, CIPR held a forum on flood insurance and the National Flood Insurance Program, which is up for reauthorization this fall. Although flood insurance is not typically thought of as an insurtech issue, regulators and industry panelists alike emphasized the importance of technology to gauge flood risk and to determine fair and accurate pricing in discussing expansion of the private market for flood insurance. 

Next up for CIPR is a weeklong “Innovation Program” that will bring together insurtech company representatives, regulators and others to explore “innovative thinking, disruptive technologies, insurance workforce, and the market implications of these trends and how regulation fits into the innovation chain.” 

The NAIC titled its latest annual report “Inspiring Innovation.” It was not clear whether the association is aiming to inspire innovation in the regulatory approaches taken by the states or in the insurance markets the states oversee. It’s critical regulators use their power for good—to encourage innovation and change, to look for ways to say yes instead of no, and to allow the marketplace to develop and grow while still protecting consumers, which is their core regulatory priority.

We think it’s doable, and the NAIC and its members should get some credit for trying to get there.

Sinder, The Council’s chief legal officer, is a partner at Steptoe & Johnson. [email protected]
Fielding, the CIAB’s general counsel, represents The Council on the NAIC’s National Insurance Producer Registry. [email protected]