Blogs
15th May 2025
Significant compliance mistakes can cause insurance firms considerable monetary and reputational harm. Although these mistakes can be made unintentionally, most of them can be avoided with proper training, research and solid RegTech systems in place…
A recent study conducted by Davies has found that 36% of financial services firms in the UK have been fined at least once in the last year for not respecting compliance regulations. Furthermore, another 62% point at how burdensome regulatory compliance demands have become since 2019.
With regulatory laws only increasing and becoming more complex, the risk of falling into the compliance error trap is only multiplying – and adopting new technology is the only way to keep up with an ever-intensifying regulatory landscape and dodge the “compliance mistakes” bullet.
For insurance and financial services firms, compliance isn’t just a regulatory formality, it’s a component that must be embedded in a company’s core culture and operations as risks of making avoidable compliance mistakes can significantly hurt the end consumer. According to Navex Global’s research, 76% of risk and compliance professionals believe that having an ethical compliance culture is absolutely essential in making strategic decisions. Moreover, Drata found that 87% of organisations in general indicated negative outcomes resulting from having a reactive rather than a proactive compliance strategy.
The consequences of compliance failures can be severe and multifaceted and are not limited to hefty fines and penalties imposed by regulatory watchdogs. Non-compliance can significantly impact an insurance firm’s relationship with both customers and trading partners, eroding their trust and confidence in the brand altogether.
Consumer interest should be at the core of every insurance firm, and now even more with the introduction of the FCA’s Consumer Duty Law in July 2023. According to Davies’s research, 63% of their respondents reported that the Consumer Duty and Fair Value rules impacted how their serve customers.
All these points considered, non-compliance can trigger legal repercussions, including lawsuits or sanctions from regulators, affecting customers and trading partners, which further strain resources.
Often, insurance firms blur the lines between what needs to be regulated and what doesn’t, leading them to make unnecessary compliance mistakes. It can also be difficult to know what regulatory issues to steer clear from and how. However, some companies are voluntarily breaching regulatory laws in the hopes of not getting caught with only one objective in mind: Making profit at any cost and to the detriment of customers.
Below we list 10 common mistakes that every insurance leader and professional must know and avoid:
The first major compliance mistake that many insurance companies fall into is over relying on manual processes and spreadsheets – thinking that operating legacy processes is cheaper and easier – while in reality investing in a technology provider that can centralise and integrate all systems with each other can give firms peace of mind, knowing that their regulatory requirements are taken care of.
Still, companies require their compliance teams to enter data and screen clients or the counterparty manually, send TOBAs (Terms of business agreement) by email and use Excel for reporting while all these tasks can be easily automated, reducing errors and data entry mistakes.
Reliance on legacy processes could also lead to AML breaches, which are automatically flagged using RegTech tools, limiting error-prone human intervention and streamlining onboarding – ultimately enabling your firm to focus on generating faster, smarter, safer business.
Insurance companies frequently work with a wide network of agents, brokers, service providers and vendors. Each of these third parties represents a potential compliance risk, especially if they’re not properly monitored.
Unfortunately, many players in the insurance industry lack structured processes to manage third-party risk, exposing themselves to violations they didn’t directly commit.
With RegTech solutions, firms can automate due diligence, continuously assess third-party compliance status, and centralise oversight across all external partners. This creates a more resilient ecosystem, protecting the brand and ensuring compliance across the organisation.
Beyond compliance resilience, assessing third-party risk also plays a vital role in protecting the end consumer, making sure they’re treated fairly and safeguarded from potential fraud.
Having a successful compliance strategy and department that stays ahead of all compliance requirements, laws and updates starts above all with a proactive compliance culture – One that is shared among all seniority levels within a firm.
Unfortunately, many businesses neglect their regulatory duties and tend to react rather than proactively prepare and strategize for unexpected changes.
Most importantly, firms naturally lean towards prioritising revenue and commissions rather than foster a proactive compliance culture across their organisations, leading to inconsistent compliance processes, missed regulatory deadlines, financial penalties and even reputational damage.
As Steve Folkard said in our latest webinar: “Leaders have the responsibility not to think of compliance as something which needs to separately from the way you run the business”. The key is to ingrain a proactive compliance culture into a business’s core values, enabling compliance leaders and insurance professionals to operate with top-notch regulatory values in mind.
Training and educating staff set the terms for compliance success – yet many companies neglect this important piece of the compliance puzzle, thinking that regulatory adherence is a tick box exercise rather than an area worth spending even more training resources on.
What many insurance firms seem to miss is that the cost of non-compliance and regulatory mistakes are even more expensive than training staff to deal with regulation properly. As Marketing Manager at REG Technologies, Zoë Parsons says: “I think compliance is something that should be embedded in the whole organisation, and that comes with education, whether that’s educating people on regulation or educating the teams on the use of technology”.
It’s crucial to enable unlimited access to all the essential information surrounding compliance and provide teams with the necessary tools and tech to tackle compliance issues with confidence.
Accurately identifying who truly owns or controls a business entity is a cornerstone of effective AML and compliance efforts. Yet, many insurance firms fall short by relying on superficial ownership information without completing further checks.
This oversight can lead to unknowingly engaging with individuals who are sanctioned, involved in illicit activity, or attempting to conceal their identities through layered corporate structures.
RegTech is essentially a tool that makes verifying UBOs, sanctions or any other red flags of your partners simpler, turning this compliance gap into a compliance competitive advantage.
With REG Verified, compliance teams can automatically assess if a company is safe to trade with – highlighting any sanctions, verification issues, and AML information instantly, consequently avoiding severe penalties and reputational harm.
Politically Exposed Persons (PEPs) are a threat to the success of any insurance firm due to their high risk of being involved in money laundering activities. However, businesses still struggle to properly identify them, which in turn impacts the whole onboarding workflow.
Being involved with a PEP can significantly tear down a company’s reputation, deterring others from starting new business relationships and slowing down routes to revenue.
With RegTech, compliance teams don’t need to second-guess anymore as PEPs’ information is easily and automatically identifiable, enabling safer onboarding.
Many insurers rely on fragmented compliance tools and processes used across multiple departments, resulting in human error, siloed information, inconsistent policies and duplication of efforts.
Fragmentation affects teams’ ability to create a unified compliance strategy that’s consistent across the entire organisation. With a RegTech provider that can centralise all data into one platform, compliance teams can benefit from a holistic view with 24/7 real-time oversight of their partners and an integration of all compliance activities such as risk assessments, policy management, reporting and audits into one single platform.
This makes compliance more efficient, measurable, and scalable for both larger firms with complex distribution chains and smaller insurers and MGAs that want to onboard brokers in a faster, smarter, safer way.
In the insurance industry, regulatory bodies are constantly introducing new regulatory standards and laws, both at a national and international level.
This signifies that insurance and compliance leaders must go beyond their daily job descriptions and current practices to keep up with these fast-changing laws. From reading the news and taking frequent compliance training to attending crucial industry events and staying up to date with the newest compliance technologies and industry standards– the list goes on and insurance professionals must do their homework to not fall behind.
While not directly mandated by the FCA and PRA, ESG due diligence is an important factor in upholding compliance, and B2B firms do take it into account when starting new relationships and managing their counterparty risks.
Not having a clear ESG strategy is frowned upon, and word of mouth travels fast in the insurance industry, which could significantly affect long-term business success.
Beyond ethicality, proactively integrating ESG considerations into insurance companies’ policies prepares them for when regulators introduce concrete laws – Which is essentially only a matter of time.
Periodic compliance checks can often lead to significant regulatory issues in the long-term. Relying solely on these infrequent audits may create gaps in oversight, leaving firms vulnerable to regulatory risks.
In contrast, continuous and frequent audits allow organisations to monitor their compliance status in real-time, enabling them to identify and address potential issues before they escalate.
This proactive approach not only helps maintain adherence to regulatory requirements but also fosters a culture of accountability and transparency within a business.
By shifting from periodic compliance audits to a more dynamic auditing process, businesses can better protect themselves against unforeseen compliance violations and enhance their overall counterparty risk management strategies.
“It is clear that the insurance market is facing increasing regulatory pressure, with compliance mistakes resulting in significant financial, reputational, and legal damage.
To avoid this, it is critical that insurance leaders invest in proactive compliance strategies and integrated RegTech solutions which is essential for sustainable growth and customer trust.“
“Regulatory compliance is a strategic imperative that protects trust, reputation, and the bottom line.
At REG, we empower insurance leaders to avoid costly compliance mistakes through smart, integrated technology that turns regulatory risk into competitive advantage.“
At REG, we are committed to simplifying complex compliance processes and onboarding duties throughout the customer lifecycle; we offer a revolutionary centralised platform that helps firms avoid damaging compliance mistakes.
From the REG Network, which powers risk monitoring success to REG Exchanges, which automates and facilitates document exchange, we’ve got you covered.
Speak to one of our experts to learn how REG Technologies can help you.
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