Sharp Increase in Regulatory Risk Concerns for U.S. Insurers: Wolters Kluwer Report

Wolters Kluwer Financial Services’ new U.S. Insurance Regulatory and Risk Management Indicator reveals that overall levels of concern for compliance and risk within the industry have risen sharply. In the report released today, the main Indicator score rose to 146 from its baseline of 100 established in October 2013.

The report’s key findings include:

• Sixty-four percent of respondents indicated a concern with the ability to maintain compliance with changing regulations, while 60 percent are worried about their ability to keep track of those changes. Fifty-seven percent of respondents were concerned with their ability to demonstrate compliance to regulators.

• When asked to describe the top concerns for their organization over the next 12 months, respondents most commonly cited “keeping up with the constant regulatory and requirement changes” and “implementing all the different requirements.” Pointing to mounting worries over the ability to manage performance alongside risk and compliance, another of the most common burdens noted was “maintaining growth and profitability in the current regulatory environment.”

• When indicating the “top risks” facing organizations, 54 percent of respondents selected regulatory risk. Thirty-seven percent selected operational risk and 33 percent chose market risk as a top risk. While virtually all of the respondents indicated their organization has undertaken some risk management efforts, many were in the early stages. Twenty percent understand and manage risks, but they do not yet have a formal process in place or they have a process in place but not an overall risk program.

• The survey also revealed that organizations face many obstacles when looking to manage risk at the enterprise level. Thirty-two percent of respondents indicated the top obstacle is the “wide range of technology systems that are not well integrated.” In addition, 21 percent indicated the “disconnect between risk management processes and strategic plans” is an obstacle. Other top impediments included the lack of “a consistent numbers-based scoring framework,” “transparency into risk management decisions,” “processes that empower employees,” and “quality data, management, and analysis.” Each of these factors was selected as a top obstacle by 17 percent of survey participants.

“Our Indicator highlights the significant obstacles insurers continue to face in both applying resources and establishing processes needed for a comprehensive approach to managing their greatest risk challenges as we get closer to ORSA implementation,” said Pam Ewing, general manager of Wolters Kluwer Financial Services’ Insurance Compliance Solutions. “We expect to see an even greater increase in the challenges organizations face as processes and programs are tested in the coming months.”

The company surveyed over 300 financial institutions to derive an “Indicator,” which measures ten critical factors facing the U.S. insurance industry. Seven factors are derived from direct input from life, health and property and casualty insurers on their top compliance and risk management concerns. The remaining three factors are based on regulatory data the company compiles, including number of affected citations, number of new enforcement actions/penalties, and value of the fines levied during the quarter measured.

Source: Wolters Kluwer Financial Services