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Managing B2B Trading, Legal, and Compliance Risks for Insurers

30th April 2024

Managing B2B Trading, Legal, and Compliance Risks for Insurers

In an era defined by rapidly evolving financial regulations, the insurance industry stands at a crucial point. Insurers are increasingly confronted with a landscape of regulatory and compliance obligations. These requirements are essential for safeguarding the financial system, yet they present considerable operational challenges… 

NAVIGATING THE REGULATORY LABYRINTH

The regulatory burden is growing, driving up costs, demanding significant resource commitments, and injecting inefficiencies into day-to-day operations. Such pressures can limit insurers’ ability to innovate and expand, directly impacting their competitiveness and growth potential. 

At the forefront of regulatory enforcement, entities like the Financial Conduct Authority (FCA) in the UK and corresponding authorities in the US, rigorously implement anti-corruption and anti-money laundering (AML) laws. These regulations aim to protect financial systems against crime, but they also require insurers to undertake extensive and ongoing due diligence. Such rigorous compliance efforts can significantly slow down operations and affect efficiency. A survey from REG’s 2024 report revealed that 69% of General Insurers reported an increase in the regulatory burden over the past year, underscoring the escalating challenges and complexities insurers face in maintaining compliance. 

Designed with the nuances of the insurance sector in mind, compliance software like RegTech offers a faster, smarter, and safer way to comply with these regulatory mandates. By streamlining and automating the intricate processes associated with regulatory compliance, this technology not only alleviates the burden on insurers but also paves the way for more efficient, secure, and compliant operations. 

HOW DOES REGTECH ALLEVIATE REGULATORY BURDEN?

Operational Efficiency 
RegTech enhances operational productivity by automating tasks and reducing errors, thus speeding up data handling and improving governance and revenue opportunities.

Reporting & Management 
RegTech improves accuracy and timeliness in regulatory reporting, while centralising data management to streamline audits and increase operational efficiency. 

International Compliance 
RegTech simplifies adherence to global regulatory standards, enabling efficient management across diverse regulatory environments. 

Cost-Effectiveness 
Investing in RegTech minimises labour and error, enhancing cost management and reducing the risk of non-compliance penalties through improved monitoring and risk assessment. 

RESPONSIBILITIES: UPHOLDING COMPLIANCE AMID COMPLEX REGULATIONS

For insurers, the landscape of regulatory and compliance requirements is extremely broad and intricate, encompassing a range of obligations from the onboarding of new partners to the ongoing monitoring and due diligence of existing relationships. This web of regulations, including AML, Know Your Customer (KYC) procedures, data privacy, consumer protection, financial stability and risk management forms the backbone of the insurance industry’s efforts to maintain integrity and prevent financial crime. 

ONBOARDING NEW PARTNERS

Key requirements for onboarding: 

KYC Procedures

Essential for establishing the identity of new clients and understanding their financial activities.

AML Compliance

Critical for preventing and detecting money laundering activities.

Customer Due Diligence (CDD)

A deeper level of due diligence is required to assess and manage the risks associated with new and existing customers.

Compliance with Sanctions

Ensuring that no engagements are made with individuals, companies, or countries that are subject to sanctions.

Legal and Regulatory Documentation

Proper documentation must be maintained to demonstrate compliance with all applicable laws and regulations.

Risk Assessment and Mitigation Strategies

Identifying potential risks associated with new partnerships and implementing strategies to mitigate these risks.

Continuous Monitoring

Ongoing surveillance of client activities and regulatory landscapes to promptly identify any emerging risks or compliance issues.

The onboarding process for new trade partners requires diligent scrutiny to ensure compliance with all regulations. AML and KYC stand out as pivotal, requiring insurers to verify the identity of their clients thoroughly and evaluate the risk associated with business dealings. This process is particularly vital when engaging with entities in jurisdictions known for high levels of corruption, necessitating a deeper level of due diligence and risk assessment to avoid inadvertently facilitating financial crime.

ONGOING MONITORING AND DUE DILIGENCE

Beyond initial onboarding, insurers must also engage in continuous monitoring and due diligence of their partners. This ensures ongoing adherence to compliance standards and helps identify any potential deviations from regulatory expectations. Such vigilance is crucial in managing the risks associated with politically exposed persons (PEPs) and entities subject to sanctions, where the stakes of non-compliance include severe legal fines, criminal charges, asset seizure, and significant reputational damage. 

HOW DOES REGTECH SUPPORT ONGOING MONITORING?

RegTech revolutionises ongoing monitoring and due diligence with its advanced data analysis, risk assessment, and real-time compliance enforcement capabilities. Utilising AI, machine learning, and big data analytics, the platform automates the collection and analysis of extensive data, creating detailed profiles of politically exposed persons (PEPs) and those under sanctions. RegTech helps to assess risk by assigning individual scores based on factors such as roles, country of origin and sector involvement, and continuously monitors for any status changes, enhancing responsiveness to potential threats. 

Real-time screening during onboarding and transactions ensures immediate identification of compliance issues, while pattern recognition helps detect unusual behaviour proactively so that it can be addressed instantly. Moreover, RegTech simplifies compliance reporting, making it easy to produce comprehensive, audit-ready documents that demonstrate due diligence, thereby ensuring that insurers meet all regulatory requirements efficiently.

THE COST OF NON-COMPLIANCE

The repercussions of failing to meet these regulatory requirements are severe and multifaceted. For instance, in 2023, fines issued by the FCA amounted to over £53,000,000. This underscores not just the financial implications of non-compliance but also highlights the broader risks to reputation and market participation insurers face when regulatory obligations are not met with due diligence. 

The essentiality of enhanced due diligence cannot be overstated, especially in identifying high-risk individuals and entities. This process is not just about safeguarding against legal repercussions; it’s also about protecting the insurer’s reputation and ensuring sustainable business practices. 

RegTech’s software is invaluable, offering tools and systems that can streamline compliance processes, enhance accuracy, and significantly reduce the risks associated with regulatory non-compliance. Through diligent adherence to responsibilities and the adoption of innovative solutions, insurers can navigate these regulations confidently, ensuring both compliance and competitiveness in a complex global market. 

THE TRANSITION WITH REGTECH

The journey towards streamlining compliance and regulatory processes in the insurance industry can be illustrated through the transformation experienced by CNA Hardy. Before the integration of RegTech solutions, CNA Hardy, like many insurers, struggled with the complexities and resource-intensive nature of traditional compliance practices. Having used the software for over 4 years, CNA states:

 “The efficiency saving is being reinvested in more time spent with brokers and clients, strengthening relationships and delivering our specialist solutions. It’s a great example of how technology can greatly enhance outcomes for insurers, intermediaries and policy holders.” 

Andy Clements, CNA Hardy

This case study not only sheds light on the challenges within the industry but also exemplifies the significant efficiencies and enhancements brought about by embracing RegTech innovations. Andy Clements’ reflection underscores a pivotal shift: by reallocating resources saved through technological efficiency, a multitude of leading insurance companies like CNA Hardy are not just meeting compliance more effectively but are also improving service delivery and client engagement. 

BEFORE REGTECH

CNA Hardy’s approach to compliance, prior to the adoption of RegTech solutions, was characterised by manual processes that were not only time-consuming but also prone to inaccuracies and inefficiencies, research indicates that it takes an average of 90 days for intermediaries to commence a business relationship. This comes down to due diligence, KYC, and AML processes involving extensive manual labour to gather, verify, and analyse data from a multitude of sources. Furthermore, over 70% of the insurance industry still rely on archaic processes when reviewing their counterparties after the relationship has been established. 

This laborious approach results in significant operational delays and escalates the costs associated with compliance activities. RegTech takes pride in reinventing how relationships within the insurance sector could be cultivated. Previously CNA Hardy’s experience mirrored the industry’s broader challenge of balancing the rigorous demands of regulatory adherence with the desire for operational efficiency and agility. 

OPERATIONAL CHALLENGES AND THE HIGH COST OF COMPLIANCE

A common predicament in the insurance industry is that insurers are burdened with the daunting task of maintaining an exhaustive and continuous oversight over regulatory requirements, which due to their manual nature, significantly strains resources. The financial implications of this traditional approach are considerable, as evidenced by over 40% of respondents within the GI industry; stating that compliance costs are the biggest challenge they face in meeting regulatory requirements. With UK financial services spending billions annually on financial crime compliance, RegTech- with its capacity to automate and optimise compliance tasks- presents a promising avenue for insurers to alleviate these burdens, transforming a major industry challenge into an area of competitive advantage. 

In the insurance industry, the adoption of advanced technological solutions for regulatory compliance is progressing, but old-fashioned methods still dominate. Around 80% of insurers still rely on conventional methods such as CRM’s, Policy Administration Systems, spreadsheets, and even paper-based methods to manage their regulatory, legal, and compliance risks.  This reliance on basic and manual processes not only increases the risk of compliance errors but also hinders operational efficiency and responsiveness to regulatory changes. Integrating RegTech can dramatically improve these aspects by automating data collection and analysis, enhancing accuracy, and reducing the time and cost associated with traditional compliance methods. This shift is not merely beneficial but essential for insurers aiming to maintain competitiveness.

HOW REGTECH HELPS

Post-RegTech integration, CNA Hardy reported a remarkable improvement in compliance related activities. The automated systems facilitated a more dynamic and comprehensive approach to monitoring and due diligence, enabling continuous and real-time assessment of compliance risks. This not only ensured a higher standard of compliance but also offered a clearer insight into potential risks, allowing for more informed decision-making. The transformation experienced by CNA Hardy along with numerous others serves as a testament to the profound impact of RegTech on simplifying and enhancing compliance processes in the insurance industry. 

RegTech emerges as a key innovator, offering solutions that transform and streamline compliance processes. By automating manual tasks and utilising advanced technologies like AI, machine learning, and blockchain, RegTech significantly enhances efficiency and accuracy for insurers. 

One of the pivotal enhancements is in the realm of document management and exchange. RegTech platforms facilitate the secure and rapid exchange of documents across entire supply chains, expediting contract management and governance processes. This transformative approach not only speeds up business interactions but also enhances the sharing of information, stimulating faster communication and smarter oversight. 

AUTOMATED EFFICIENCY AND CUSTOMISED SOLUTIONS

RegTech’s automation includes AML controls and real-time screenings, tailoring its solutions to the unique demands of the insurance market. This allows insurers to seamlessly adhere to diverse regulatory regimes, ensuring global operational efficiency. 

The technology empowers insurers with advanced data analysis, facilitating comprehensive profiles of individuals and enabling sophisticated risk scoring. Real-time screening for PEPs and sanctions during critical processes like onboarding enhances decision-making speed and accuracy. Additionally, pattern recognition capabilities aid in identifying potential compliance red flags, further solidifying risk management efforts. 

RegTech streamlines the creation of reports ready for auditing, showing compliance with regulations and thorough due diligence. Advanced screening for adverse media provides insurers with valuable insights, supporting proactive and informed decision-making regarding suspicious activities. 

RegTech not only streamlines compliance processes but also enhances broader business operations leading to faster routes to revenue. Additionally, RegTech facilitates sustainable trade partnerships and boosts stakeholder confidence by ensuring compliance across networks, which supports portfolio expansion with reliable compliance infrastructure. 

RegTech in the industry signifies a leap towards operational excellence, allowing insurers to navigate regulatory complexities with unprecedented agility and confidence. The collaboration of automation, technology, and tailored solutions not only accelerates compliance processes but also positions insurers for sustainable growth and enhanced market credibility. 

To explore how the REG Network can streamline your compliance processes and position your business for success in a regulated environment, Book a demo with our team

This article was published by:

Article author:

Ella Olamona

Ella Olamona is the Marketing Executive at REG Technologies. With a drive to integrate innovative digital assets and expand market presence, she strategically blends creativity with analytics to create impactful marketing content.

020 3946 2880

info@reg.uk.com

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