Elevate Compliance Risk Management In Insurance

Even if you are not a fan of the Bard of Avon, you would have stumbled upon the line, “To be or not to be”. A modern-day governance conundrum in a responsible organization is “To comply or To comply”. Nonconformity is not a choice. A life insurance company deals with the common man’s money known in industry-speak as the interest of the policyholder. Let’s explore how one can leverage the mundane necessity for a higher goal.

4 W’s of Compliance

• Who: While every insurer, employee, distributor, and surveyor has to adhere to the law of the land, every other part of the supply chain should be aligned.

• What: The insurance regulator guides the insurance ecosystem in the country with a set of regulations, guidelines, and circulars. The board of every company approves policies to govern the business. Each function creates an SOP that defines the way it will function. ‘Compliance in spirit’ covers the entire spectrum.

• When: “Compliance day/ week” are intended to highlight the importance and build awareness as this hygiene factor does not have a busy or lean season and is meant to be practiced round the clock, across the year. 

• Why: “The Code of Hamurabi”, a Babylonian legal text is one of the earliest set of laws known to humankind and dealt with everyone in the society of those times & was used to govern the state. Likewise, the intent of elements to comply is most certainly benign. E.g. the mission statement of IRDAI starts of starts with, “To protect the interest of and secure fair treatment to policyholders”. Every rule or guidance note has a genesis and we strive to meet the intended purpose.

The How of Compliance - Art, Science & Beyond: 

While it’s neither an art nor a science, exploring these dimensions can elevate compliance risk management to achieve excellence. Going beyond and following an integrated approach can lead to pole positions.

• Science: Building compliance into the DNA of the organizational process by weaving it into every Standard Operating Procedure (SOP) is the best of making it second nature. An automated underwriting workflow, system-generated mail reminders to respective functions to ensure regulatory reporting, escalation mechanisms to insulate the error of omission, and dashboards to the head of the function are smart ways to administer compliance as a science. 

• Art: While several organisations practice the above, doing it with awareness is the key. If every stakeholder is clear on the “What’s in it for me,” any potential conflict is avoided. The Art of compliance plays its part here. A pre-requisite to practice this art form is to interpret the law or guideline with the intent of application in spirit. Once done, educating stakeholders on the 4 W’s of compliance pertaining to their role can close the loop. Setting expectations is the first step to managing them. For e.g. all advertisements in the insurance industry are to be filed with the regulator within seven days of launch. If the product, marketing, advertisement, and compliance teams are aligned on the Do’s and Don’ts, launching an advertisement can be a well-oiled machine. Else, it can become a tug of war betwixt teams.

• Beyond: In an age of rapid change, the traditional checklist may not suffice. Adherence is needed when normalcy prevails. New normal brings in the need to look beyond. For e.g., the onset of the pandemic resulted in the inability of customers to go for medical tests in the first few months. The environment led to a demand for pure protection and health insurance policies leading insurers to a Catch 22 considering the limitations of reinsurance in place at that juncture. Organisations that had a risk appetite tweaked their underwriting approach to leverage the silver lining opportunity amidst a worldwide crisis. 

A dynamic environment introduces the role of compliance in influencing strategy. All new projects and experiments in an organisation when consulted by compliance can not only breathe easier but can leverage available opportunities which might have been assumed unavailable. The advisory role of compliance is hence on the rise.

Insurance RegTech is an emerging phenomenon and set to transform the way compliance teams will function going forward. This is especially true in the wake of the fast pace of evolutionary regulation and technology advancements in the insurance industry. Automating repetitive tasks has already found popular usage amongst several insurers. The ability of AI applications to do a precis of complex documents to give executive summaries needed to take decisions and getting alerts on regulation changes and monitoring the same are turning into reality. Regulatory reporting alone has 100+ views being generated. If we add board reports and management reports this number will grow manifold. InsureRegTech can not only change the way these reports are prepared but can also the way they are consumed. These reports are invariably rich in data and can throw up interesting opportunities if processed smartly.

Thanks to the dynamic role of the Indian insurance regulator, the industry has seen some significant changes in the last two decades aimed at upholding policy holders’ interest, enhancing insurance penetration and growth of the industry, enhancing distribution and use of technology amongst others. The boardroom of an Indian insurer has also evolved over this period leading to the practice of good governance through policies that empower and at the same time guide and mentor the organisation. This requires the compliance function to envision and manage challenges to the status quo with the objective of a better tomorrow. It also requires stronger networking amongst the industry practitioners through forums like the Life and General councils to be able to play catalysts. 

Compliance risk management is undergoing a metamorphosis and can make a significant strategic difference to every organisation in addition to being the safety net.

The author is Chief Compliance and Risk Officer, IndiaFirst Life Insurance Company Ltd.

DISCLAIMER: The views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.