iais update: 2018 annual meeting - deloitte united states › content › dam › deloitte › us...

IAIS update: 2018 annual meetingInternational insurance regulators move focus to technology, other emerging risks

LUXEMBOURG CITY, LUXEMBOURG— The “robust attendance” was “a testament to the global leadership role” that the International Association of Insurance Supervisors (IAIS) has played through standard-setting, IAIS Secretary-General Jonathan Dixon told those assembled for the IAIS 25th Annual General Meeting in the hall at the European Conference Center normally used for meetings of European Union (EU) ministers.

“We will focus on several emerging risks . . . giving particular attention to technology,” Dixon said, calling that a “sign of the pivot” away from just solvency regulation.

The international assemblage of insurance regulators had signaled at its global seminar in Moscow that it considered the post–financial crisis work of resetting solvency regulations for insurers largely done. At that meeting, stakeholders were told that emerging risks such as technology, climate risk, and inclusion were among those that would be the focus of the organization’s upcoming five-year plan.

That message was repeated on numerous occasions at the IAIS meeting. The mood seemed to be one of confidence and congratulations, as measures such as the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) and the related insurance capital standard (ICS) neared completion.

Contents

Finance minister: Digital economy, climate change are game changers .......3

IAIS: ComFrame, ICS, ICP development work proceeding..........................................4

New macroprudential regime should touch more insurers...................................6

IAIS strengthens assessment program..........................................................7

Will “big data” protect or betray consumers?....................................................8

Does tech threaten market conduct supervision?.................................................10

Support sustainable investment?.........11

Insurers must respond to climate change, protection gap............................12

EU-US insurance project.........................13

IAIS update: 2018 annual meeting

2

That does not mean work on solvency measures is complete. ComFrame and the ICS will be implemented for a five-year monitoring period during which the ICS version 2.0 will be used for confidential reporting to an insurer’s group-wide supervisor and for discussion in supervisory colleges, but not as a prescribed capital requirement (PCR). ICS will therefore not be used to trigger supervisory action. At the end of that five-year period, the revised ICS is intended to become a PCR.

Differences remain among IAIS members. In the United States for example, the group capital calculation being developed by the National Association of Insurance Commissioners (NAIC) is simply that, according to regulators working on it—a calculation intended to aid supervisors and not a PCR. However, for now at least, IAIS members could take a symbolic victory lap, as some of the most contentious negotiations over international insurance regulation seem to have ended in consensus.

The US aside, the meeting held in one of the three capitals of the EU in the space used by ministers representing members of that union could not help but be a reminder of the difficulties facing Europe itself. The European Insurance and Occupational Pensions Authority (EIOPA) has been a significant force in its role of driving regulatory changes, from Solvency II in the EU to ComFrame and the ICS.

What happens as a result of the impending Brexit remains unclear, but perhaps the reelection of Victoria Saporta of the Bank of England as chair of the IAIS Executive Committee (ExCo) might be taken to suggest that for insurance regulators, continuity may be desirable.

Continuity is not stasis. That was the message shared widely from the podium at this IAIS meeting. Indeed, the theme of this annual general meeting was forward-looking: “Reimagining Insurance.”

IAIS leadership explained that the IAIS saw itself as taking on new functions in a world a decade removed from the financial crisis. These functions would include more emphasis on implementation and the kind of assessment of supervisory authorities formerly most associated with the International Monetary Fund’s Financial Sector Assessment Program (FSAP).

In her welcome to attendees, Saporta said that insurance was changing for many reasons, especially technology. “Next year . . . we will put to bed the post-crisis reforms and pivot,” Saporta said. Addressing the changes facing insurance supervisors, including those wrought by technology, Saporta asserted, “We have to reimagine insurance supervision.”

“Next year . . . we will put to bed the post-crisis reforms and pivot,” Saporta said. Addressing the changes facing insurance supervisors, including those wrought by technology, Saporta asserted, “We have to reimagine insurance supervision.”


3

Pierre Gramegna, keynote speaker and minister of finance of the host country Luxembourg, welcomed IAIS Annual General Meeting attendees to the room where he said EU ministers meet for three months each year. He used that as a springboard to discuss the importance of international insurance regulation.

“Climate change, digitalization are issues that are important to you and to all governments,” especially to finance ministers, Gramegna said. He expressed understanding for those who thought governments were overly cautious as well as those who said, in his words, “you ain’t seen nothing yet of risks.”

Regulators should speak the language of business, and predictability was of prime importance, Gramegna told the stakeholders, adding that regulators needed to have a good reputation to be credible. Close to a dozen insurers opened facilities in Luxembourg as a result of Brexit, Gramegna said, attributing that to the Grand Duchy’s reputation and credibility.

The world and insurers in particular faced two game changers, according to Gramegna. These were the digital economy and climate change. Climate change requires big numbers and investments, and the only industry that can provide that is insurance companies, the finance minister said.

In what could be taken as his own call for reimagining insurance regulation, Gramegna criticized one aspect of the Solvency II regime governing European insurance. Solvency II laws are too punitive to insurers investing in climate change, he said, calling for those to be revised.

Finance minister: Digital economy, climate change are game changers


4

As the 2019 implementation of ComFrame and ICS v 2.0 draws closer, work continued at the IAIS on necessary regulatory changes, IAIS Policy Development Committee Chair Elise Liebers told the IAIS Major Project Update session.

Among the items completed in 2018 was the exposure of the draft overall ComFrame in July for a 90-day public consultation. The draft included new internationally active insurance group (IAIG) identification criteria, new supervisory principles for the identification of the head of an IAIG, and amendments reflecting the Kuala Lumpur agreement reached at last year’s annual general meeting.

A number of insurance core principles (ICPs) were revised. Among them was ICP 6, covering a change of control and portfolio transfer, which was adopted at this meeting. Also at this meeting, the ExCo endorsed revisions to ICP 8 on risk management and internal controls, ICP 15 on investments, ICP 16 on enterprise risk management for solvency purposes, and ICP 20 on public disclosure.

Speakers gave a recap of the ongoing development of ICS v 2.0 and ComFrame. They told stakeholders that ICS v 2.0 had two equally important components. One was mandatory confidential reporting by all IAIGs of a reference ICS. This is based on market adjusted valuation (MAV), the standard method for capital requirements, and converged criteria for qualifying capital resources.

The second component of ICS v 2.0 was additional reporting at the option of the group-wide supervisor of ICS based on GAAP Plus valuation and/or other methods of calculation of the capital requirement. That was part of the Kuala Lumpur agreement.

IAIS: ComFrame, ICS, ICP development work proceeding

Analysis of the 2018 field testing of ICS v 2.0 was ongoing. Data were due on August 31 from the 47 volunteer groups from 18 jurisdictions participating. Key changes in the 2008 field testing were the three-bucket approach to discounting used for MAV; the split between GAAP Plus jurisdictions doing a full ICS calculation, balance sheet only, or answering qualitative questions; use of three different margin over current estimate (MOCE) options; acceleration clauses that may be triggered in a going concern under capital resources; the introduction of nondefault spread risk within market risk under capital requirements; and the inclusion of a deferred tax liability cap on the ICS stress tax effect.

The IAIS also collected data to support the development of an aggregation method by interested jurisdictions in order to assess whether such a method would deliver a comparable outcome to the ICS, in addition to the inclusion of GAAP Plus—this was another result of the Kuala Lumpur agreement. Volunteer groups from five jurisdictions participated in that data collection. These data were also due at the end of August, and the analysis is ongoing.

The timeline for adoption of ComFrame and the ICP revisions remains as previously proposed.

ComFrame 2019 timeline

First half of 2019

• Review ComFrame consultation comments

• Revise ICPs for consistency, where necessary

• Revise ICP and ComFrame as part of the holistic framework for systemic risk mitigation

November 2019

• Adoption of ComFrame, ICPs, ICS v 2.0 at annual general meeting

June 2019

• Publish summary of ComFrame comments, resolution

June – August 2019

• 60-day public consultation on ICP and ComFrame revisions


5

Other work finalized in 2018 included an issue paper on “Increasing Digitalization in Insurance and Its Potential Impact on Consumer Outcomes.” The IAIS also produced two application papers in 2018—one on the “Supervision of Insurer Cybersecurity,” and another on the “Composition and Role of the Board.” ExCo adopted all three papers. The IAIS is currently working on an application paper on recovery planning.

Application papers provide additional material related to one or more ICPs, ComFrame, or G-SII policy measures, and can provide information to supervisors on how supervisory material may be implemented. Issues papers provide

background on particular topics, describe current practices, actual examples, or case studies pertaining to a particular topic and/or identifying related regulatory and supervisory issues and challenges. The IAIS says they are primarily descriptive and not meant to create expectations on how supervisors should implement supervisory material, but often form part of the preparatory work for developing standards and may contain recommendations for future work by the IAIS.

There were some expressions of concern from the audience. “We need to do more reframing than ComFraming,” said a Mexico industry representative.


6

Macroprudential Committee (MPC) Chair Alberto Corinti provided an overview of the work of the MPC at the IAIS Major Project Update session. The committee has been charged with the development of a holistic systemic risk framework. That framework broadens the emphasis beyond the entities-based, capital-focused system first conceived for macroprudential regulation to an activities-based system less focused on size and more on potentially risky activity wherever that might happen.

Ongoing macroprudential monitoring assessment at the MPC includes the annual G-SII assessment exercise and macroprudential surveillance. Corinti said macroprudential analysis was mainly focused on risks and trends within the broader economy that could impact insurance companies. He added that based on the announced work plan of the IAIS, he expected a consultation document would be launched in November 2018 that would bring together three work streams into a proposed holistic framework.

Work streams included one that focused on the development of the activities-based approach, another to address cross-sectoral aspects and systemic risk assessment, and the third focusing on revising the entities-based approach. He noted that while any individual insurer may not pose a systemic risk, such a risk could be possible through the activities of many insurers. That was the reason for the activities-based approach.

New macroprudential regime should touch more insurers

The new holistic framework was approved in November. Corinti said the framework’s name was to be able to prevent systemic risk from materializing, to identify the buildup of potential systemic risk, and lastly, to mitigate those risks should they materialize anyway.

The framework shows an evolution of the IAIS’s approach to systemic risk. In addition to the entities-based focus, the IAIS will seek to address cross-sectoral aspects of systemic risk by comparing the potential systemic risk of insurers with other parts of the financial system, most notably the banking sector. It intends to introduce a proportionate application of an enhanced set of policy measures for macroprudential purposes, targeted to a broader portion of the insurance sector.

That may indicate that insurers not now subject to such macroprudential surveillance—in other words, not considered systemically important either nationally or globally—could find themselves the subject of upcoming policy measures.

Corinti said the policy measures could be grouped into two categories: ongoing supervisory policy measures and powers of intervention for supervisors. Some of the policy measures will be explicitly targeted at an identified systemic risk while others will have a broader application to assess or mitigate potential systemic risks, he said. Some of those measures would be relevant to both micro- and macroprudential approaches, he added.

Work is continuing on the creation of a global monitoring exercise—a central element of the holistic framework. That exercise will include an annual data collection from individual insurers, data collection from supervisors on sector-wide trends, and data analysis by the IAIS to assess potential systemic risk. Corinti said the IAIS would try to make data collection as painless as possible for insurers by applying synergies with other data collection efforts. This exercise development will continue into 2019.


7

Jose (Pepe) Lopez Hoyo, chair of the IAIS Implementation and Assessment Committee, brought attendees at the IAIS Major Project Update session up to date on that committee’s work. The committee’s work increases in importance as the IAIS moves from dependence on the IMF to its own assessment program.

Assessment is one leg of the three-legged stool supporting macroprudential regulation, along with standard-setting and monitoring. Hoyo said that a transparent process of implementation assessment will help ensure a globally consistent application of macroprudential policy measures.

That process becomes more necessary as the revised systemic risk assessment methodology is applied into 2020, along with the implementation of the revised ICPs and ComFrame. The holistic framework itself is expected to be revised after three years of implementation. This process is currently scheduled for November 2022.

Hoyo said that the changes—shifting the focus from policy development toward implementation—created a whole new framework for his committee. The pillars of the implementation program will be assessment and implementation monitoring, supervisory capacity building, supervisory cooperation, and supervisory practices.

Hoyo said the IAIS was working on how to ensure good and consistent assessments of jurisdictions. Two assessments were launched in 2018. One was on supervisors and supervisory powers (ICPs 1 and 2) with nearly 70 jurisdictions participating. There will be a second assessment; a phase 2 assessment on liquidity management among group-wide supervisors in 2019.

In a signal of increased supervisory cooperation, six more authorities joined the multilateral memorandum of understanding in 2018. The 70 signatories represent more than 70 percent of global gross written premium.

The committee published four major papers in 2018. These were application papers on product oversight in inclusive insurance and on the use of digital technology in inclusive insurance, and issue papers on climate change risks to the insurance sector and on index-based insurances, particularly in inclusive insurance markets. Work is in progress on an application paper on the proactive supervision of corporate governance.

In 2019, the committee expects to continue implementation of its assessment tools and to engage on emerging issues. Emerging issue engagements include supporting a FinTech forum, addressing cyber underwriting, and continuing to collaborate with the Sustainable Insurance Forum on climate-related risks.

IAIS strengthens assessment program

Responding to a question from an industry representative, the IAIS speaker said cyber risk underwriting was increasingly important—and a topic in which the IAIS has an interest in seeing that it was taking place in a sound and sustainable manner. The IAIS was reaching out to stakeholders to see what, if any, should be the role of insurance supervision in that space.


8

The balance between innovation and consumer protection was a recurring theme at the session titled “A Brave New World of Big Data and Artificial Intelligence—What It Means for the Insurance Sector and Insurance Supervision.”

Senior German regulator and panelist Frank Grund drew a picture of the possible impact of big data. Grund said big data allowed for much more differential risk assessment and pricing. Insurers could use that to develop more situational products and could support or partially replace actuarial input. This could reduce claims costs and increase cross-selling, he said.

New customer interfaces using artificial intelligence (AI) will become increasingly more important, and new vendors could enter the market, whether they were big technology firms or InsurTechs. These could start offering their own products instead of acting primarily as intermediaries, as is now common.

AI permits better forecasts of customer behavior in areas such as pricing, and customers could be offered different prices for the same product because of price indifference, Grund said. He noted that in the EU that could be considered illegal discrimination, depending on the outcome, even if discrimination was not intended. Supervisors must manage this, he said. Many US state insurance regulators banned such price optimization.

Grund offered suggestions for regulators: Regulators have to recruit and train people and get a broader view of financial risk. Regulators should themselves use predictive analytics and technologies. On the other side of the table, industry should have to ensure the traceability of data for consumers.

Will “big data” protect or betray consumers?

Fellow panelist Brenda Cude, a professor at the University of Georgia and NAIC consumer representative, proposed criteria for evaluating the impact of big data. Her criteria included:

• Transparency

• Empowerment: How can big data and AI be used to help consumers understand what they can do to mitigate risk or compare product value?

• Ownership and control of data and how it affects consumer confidence

• Fairness

• How will it affect the availability and affordability of insurance?

Cude asked regulators to consider customer reaction, including their level of understanding of the use of big data and what may be required to explain it effectively.

Director Ray Farmer of South Carolina, president-elect of the NAIC, said US state regulators have been very focused on competition among insurers as a consumer positive. Farmer said consumers need to know what data are collected and how these data are being used. Referencing the NAIC’s State Ahead strategic plan, Farmer told the group, “Big data is and will continue to be an extreme priority for the NAIC.”

Cude noted that she could imagine dynamic pricing where the cost of coverage varied every day based on what she did. She called that a recipe for less consumer trust and more confusion if that was not properly explained and understood. Christian Schmidt, director of digitalization for insurance think tank the Geneva Association and another panelist, said there needed to be good collaboration among stakeholders to develop a framework that allowed innovation while protecting consumers.

“We need a lot of checkpoints along the way from experts,” Cude said, adding that consumers could not do it by themselves. Pointing out that regulators did not wish to relive credit score issues, Farmer said big data needed to make sense. Consumers had to understand the input and algorithms of models, and companies needed to explain them so they made sense for regulators and consumers.

Schmidt in his presentation mentioned problems with consumers and big data.

“We don’t really know the value of the data we are sharing,” he said, and in his view that lack of knowledge is what creates problems. “We get on our phones and don’t understand how the data begins to flow.” According to Schmidt, a singular data point with zero value can gain value in the aggregate, and companies are the ones capitalizing on the data we create.

Data can change the view of risk, he continued, asking if a young driver was necessarily as risky as industry has assumed. Overall, technology raised many issues about the value of data and privacy.

Regulation should be technology neutral, Grund said, focusing on outcome rules and not anti-innovation. On an ownership paradigm, he cited the EU’s General Data Protection Regulation (GDPR): “Data belongs to the customer and the company can only use it to the extent necessary.”


9

Regulation should be technology neutral, Grund said, focusing on outcome rules and not anti-innovation. On an ownership paradigm, he cited the EU’s General Data Protection Regulation (GDPR): “Data belongs to the customer and the company can only use it to the extent necessary.”

NAIC consumer representative Birny Birnbaum asked if the role of consultancies and data brokers could raise antitrust issues. Cude suggested making de-identified big data available to researchers who have a consumer focus.

A panelist representing a major Japanese nonlife insurer discussed his experience with the possible successor to the pay-as-you-drive policy—a pay-how-you-drive policy. He called it Japan’s first insurance product that reflects a customer’s driving behavior data.

While that program meant higher costs for now, the panelist said he expected that to change through payout reduction. He cited statistics showing that accident frequency thus far in 2018 was 8.2 percent in the telematics group as compared to 12.4 percent for their non-telematics client base.

Looking to the future, the Japanese insurer representative said he saw competition coming from big tech companies, but alliances could also be formed. Whatever the trend, supervisors must ensure fair competition, he said.

In a quick-response survey, 31 percent of attendees said they thought big technology firms would seize significant market share from current participants in the future; however, 68 percent thought increased technology use would drive innovation at existing insurers.

“We don’t really know the value of the data we are sharing,” Schmidt said, and in his view that lack of knowledge is what creates problems. “We get on our phones and don’t understand how the data begins to flow.” According to him, a singular data point with zero value can gain value in the aggregate, and companies are the ones capitalizing on the data we create.


10

In what was billed as “A Supervisory Discussion of a Holistic Approach to Insurance Supervision—Making the Link between Prudential and Conduct of Business Supervision,” technology and data took center stage among the issues most pressing for regulators.

Asked to list some major issues, Greg van Elsen of EIOPA, an advisor on financial consumer protection to BEUC, the European Consumer Organisation, cited privacy, online distribution, and insurance guaranty funds. The representative of an Asian arm of a major Canadian insurer said volatility and the impact on regulators who have not moved to a risk-based supervisory protocol was a concern. Other concerns included distribution and data and technology. Data loss and data abuse were both specifically mentioned.

Connecticut Insurance Commissioner Katharine Wade’s list included market and liquidity risk, risk resiliency, and data use. The how, why, and correlation of data use were among her concerns. She also mentioned the changing skill set of regulators that would be necessary to cope with the changing market.

Asked about the conflict, if any, between prudential risk and market conduct supervision, Wade said that in Connecticut a holistic approach was used, with coordination and cooperation between the market conduct and the financial regulators in her department.

Emma Curtis of the Australian Securities and Investments Commission took a similar tack, saying the communication and coordination between the two regulators in Australia was key.

Wade said that her department engaged with potential InsurTechs early so they understood how InsurTechs work and InsurTechs understood how insurance regulation works. “We’re not seeing these huge consumer issues,” she said. “We’re making sure consumers understand what they’re buying.”

Privacy and its attendant cost was an issue cited by van Elsen. Asking if he would have to pay more not to tell an insurer what he was eating, van Elsen said that underwriting and the types of data used could result in a Big Brother–type system. “We need a broad societal debate,” he said. Ethics, boundaries, approvals, and what should not be collected at all should be discussed.

Chair Fernando Restoy of the Financial Stability Institute said that regulator use of technology had clear benefits. Moderator Gabriel Bernardino, EIOPA chair and an ExCo member, said supervisors were behind the curve and needed to catch up.

NAIC Consumer Representative Birny Birnbaum spoke to the panel on the potential impact of poor modeling. Looking at these new algorithms is important from a prudential as well as a market conduct viewpoint, Birnbaum told the group.

Wade noted that professional standards apply to many professionals in insurance departments, but the question was how to manage self-learning algorithms. She suggested looking at the governance processes around the development and deployment of such systems.

Does tech threaten market conduct supervision?


11

What role, if any, should insurance regulators play in supporting sustainable development? That was the question facing panelists at the “Supporting Sustainable Economic Development: Exploring the Role of Insurance Supervisors” session at the IAIS meeting.

Hong Kong Insurance Authority Chair Moses Mo-chi Cheng said regulators had possibly conflicting roles—to protect policyholders and to support social and economic progress. When it comes to supporting sustainable economic development, the absence of a liquid secondary market adds to difficulties with infrastructure investment and valuations, Cheng said.

Andreas Jobst of the World Bank Group said that infrastructure contributed more than half of global emissions annually, and so should also be the focus of possible solutions. Insurance companies as long-term, liability-driven investors align well with infrastructure needs, he said.

Support sustainable investment?


12

“We are at a tipping point and government is expecting us to step up and step in,” said panelist Francis Bouchard, representing the American Insurance Association at the “Climate Risk and Natural Catastrophes—Closing the Protection Gap” session. Panelists discussed the increase in climate risk and widening protection gap.

Citing G7 statements on the protection gap, Bouchard said that the consensus was around mitigation, prevention, and need. “The insurance industry is taking a very different view of the protection gap,” he said, with supervisors partnering with industry on this. Bouchard said critical issues included the free flow of capital and how distribution is changing, and that may require some change to the regulatory approach.

The representative of a major European reinsurer on the panel said that the 10-year average of insurer losses has been outpaced by the growth of economic losses. The largest uninsured natural catastrophe exposures are in the United States, Japan, and China in absolute value in dollar terms, though not as a percentage of GDP.

To close the under-insurance gap, she suggested a combination of approaches. Public-private collaboration; increased access to and distribution of insurance products; improved product design; and required mitigation, building standards, and zoning protocols all had a part to play. “One of the biggest needs is data in order to address and understand the issue,” she said. “Regulators should pull together for clear standards.”

The representative said parametric products may be one of the single most important tools available to expand access, especially in less-developed economies. Better standard definitions for parametric products and the required proof of loss were essential, and innovation, not just technology, would help.

Insurers must respond to climate change, protection gap

Peter Braumüller, an Austrian regulator and member of the ExCo, also serves as chair of the A2ii Governing Council. A2ii stands for the Access to Insurance Initiative. Braumüller said that in emerging Asia, the protection gap exceeded 90 percent for all three major perils—storms, floods, and earthquakes. Regulatory certainty was needed, he said, with a sound regulatory framework to create a stable market and to protect policyholders.

David Rule, executive director, Insurance Supervision, Bank of England, noted that the Prudential Regulation Authority (PRA) of the Bank of England had issued a paper in 2015 saying transition and physical risk were the main risks of climate change. Liability risks were also associated with climate change in that paper.

The Bank of England thinks climate change should be treated not as a corporate social responsibility issue, but as a core financial and strategic risk, he said. The UK government has created a new partnership with the World Bank based in London called the Center for Global Disaster Protection (CGDP). The CGDP’s goal is to work with insurers to design financing insurance packages that encourage investment and resilient infrastructure and give insurance payout to enable fast recovery if natural disaster events occur. The CGDP aims to provide a range of finance solutions to developing countries vulnerable to natural disasters using the risk-management expertise provided by the London market.


13

EU-US insurance project

Cyber tops EU-US agenda

“Cybersecurity Risks and Cyber Insurance Market: Insurance Supervision and Cyber Risks” was the leadoff topic at the EU-US Insurance Project held immediately after the IAIS meeting in Luxembourg.

Regulators speaking on the panel agreed that cyber was of top importance, that regulators expected to see board involvement, and that cyber risk management should be fully integrated into enterprise risk management.

As the discussion turned to cyber insurance, the question was raised as to why the US market was much larger than the European market. A European representative cited data availability and the GDPR as among the possible reasons. The representative also said that it could simply be that US insurers were more innovative or daring, or it could be due to different regulations. Another possibility was that awareness had been triggered by events in the United States.

NAIC President Eric Cioppa of Maine said some products offered were outstanding, but he was concerned about underwriting and lack of data. The product is necessary and insurers help by offering it, “but what’s a catastrophic loss going to look like?” Cioppa wondered if the product was priced properly.

Then head of the Federal Insurance Office Steven Dreyer said that the Treasury Department was very focused on cybersecurity. An EU regulator responded that governments are involved but also that there is an inequality of weapons between cyber attackers and defenders. “We as an insurance industry wanting to underwrite this need to know (how to manage) security for emerging threats.”

Possible responses included excluding some risks and making sure that the possible downstream loss was understood. One worry, the EU regulator said, was small to medium-size companies. Cioppa said he saw smaller and medium-sized companies using more vendors, and there will be more focus on those third parties. States like Maine would also have to contract out cybersecurity to some extent.

The problem was similar in the European Union, one EU regulator said, with talent being a significant issue. There simply were not enough people with the available expertise.


14

Panelists disagree on effects of “big data”

On a panel covering “Big Data: Understanding the Age of Big Data” at the EU-US Insurance Project, NAIC Consumer Representative Birny Birnbaum urged regulators to stand up for consumers.

Birnbaum spoke in favor of public disclosure to consumers of big data use as some regulators noted that some rating variables seem to not be justified. Everything has swung much too far to confidentiality, Birnbaum said.

Supervisors need to know what kind of data insurers are using and for what purposes, according to Birnbaum. He recommended that regulators monitor consumer market outcomes and not just model inputs, as they would be unable to connect the models with outcomes otherwise. He said there was a huge disparity between financial and market outcome data that are collected by regulators. NAIC President Eric Cioppa said that the NAIC’s State Ahead three-year strategic plan is heading in that direction, but not overnight.

There was a difference of opinion between a European regulator and the representative of a major European insurer on the effects of big data on consumers. The insurer’s representative told the group that the ability to increase the amount of data analyzed reduced uncertainty and thus the necessary risk margin. That should reduce cost to the consumer, and the uninsurable may become insurable—a clear consumer benefit.

The regulator responded differently, saying there was no evidence yet that big data benefited consumers as opposed to insurers. He cited pay-as-you-drive policies and a regulatory study that showed that consumers were better off with regular automobile insurance policies. He also mentioned the risk of price discrimination.

Birnbaum agreed with the regulator, saying that with more data one could do more granular risk assessment, but that did not necessarily translate to more accuracy.


15

Gary ShawVice ChairmanUS Insurance Leader Deloitte LLP+1 973 602 [email protected]

Richard GodfreyPrincipalUS Insurance Risk and Financial Advisory Leader Deloitte & Touche LLP+1 973 602 [email protected]

Howard MillsManaging Director Global Insurance Regulatory LeaderDeloitte Services LP+1 212 436 [email protected]

Neal BaumannPrincipalGlobal Insurance LeaderDeloitte Consulting LLP+1 212 618 [email protected]

For more information, please contact:

About the author:

Andrew N. Mais, formerly a director at the New York State Insurance Department, is a member of Deloitte’s Center for Financial Services, providing industry-leading thought leadership and insight on regulatory affairs on state, national, and international levels and related topics to the financial services sector.

Acknowledgment

The author wishes to thank Courtney Scanlin Nolan for her assistance in the completion of this project.

AuthorAndrew N. MaisSenior ManagerDeloitte Center for Financial Services Deloitte Services LP+1 203 761 [email protected]

About DeloitteThis publication contains general information only and Deloitte Risk and Financial Advisory is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte Risk and Financial Advisory shall not be responsible for any loss sustained by any person who relies on this publication.

As used in this document, “Deloitte Risk and Financial Advisory” means Deloitte & Touche LLP, which provides audit and risk advisory services; Deloitte Financial Advisory Services LLP, which provides forensic, dispute, and other consulting services; and its affiliate, Deloitte Transactions and Business Analytics LLP, which provides a wide range of advisory and analytics services. These entities are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2018 Deloitte Development LLC. All rights reserved.

iais update: 2018 annual meeting - deloitte united states › content › dam › deloitte › us...

Documents