Insurance Startup Impact on Regulation

Guest author: Mike Fitzgerald, Senior Analyst, Celent

Look at the priority projects at major insurers and you see the handprint of InsurTech startups. In order to gain the speed and cost advantages seen by the new entrants, incumbents are racing to include cloud, devops, API and microservices in their architecture. Implementation and design techniques at insurance companies increasingly involve customer-centered design and agile implementation. My conversations with startups this week raised another opportunity area for insurance modernization – regulation.

I had the pleasure of facilitating a workshop with the inaugural Hartford InsurTech Hub cohort on the topic of U.S. insurance regulation. I use the word ‘pleasure’ because it was encouraging to field the great questions and explore the insights and curiosity of the participants. The public-private sponsorship of Hartford InsurTech Hub involves regulators from the outset and places the accelerator in a unique position to be able to engage regulators. I am hopeful that our session was the first step in that direction.

My research into insurance innovation leads to two central observations regarding regulation and InsurTech. First, it is imperative that tech startups appreciate the significant role that compliance plays in insurers’ decisions. Unlike other industries, non-compliance is not optional. The Uber example does not “play well” when engaging an insurance professional who has spent a career protecting their company against regulatory censure. In our session, we went through six different categories of regulation  (company and producer licencing, product, financial, and market regulation and consumer services[1]) and also looked at the different penalties regulators employ. The purpose of this was to give the participants a chance to see the challenges through the eyes of the insurer.

Second, new propositions can win favor with regulators. We spent time reviewing the organization of regulation to explore how InsurTechs might approach regulators and insurance company compliance professionals with their ideas. In the past 18 months, startups like @Trov, @Lemonade_Inc, and @SliceLabs have gained approval for their propositions by following a strategic approach to both regulators and insurers. It was useful brainstorming with the Hartford cohort how they might use some of these same tactics.

Our session ended with a look to the future. It is clear that regulators will be crucial to insurance innovation. Hartford InsurTech Hub is unique among accelerators in that it is a public-private cooperative with regulators recognizing the need and opportunities alongside the industry and startups. With the information we covered in the session, I am optimistic that the companies in the initial cohort will be better positioned to engage Connecticut regulators in discussions about how to best bring about higher value propositions for insurance consumers. The proximity of the tech startups to the regulators is certainly a great opportunity to make progress in this area.

Mike Fitzgerald
Senior Analyst, Celent

@mikefitz01
@Celent_Research

[1] http://www.naic.org/documents/consumer_state_reg_brief.pdf