Change is the only constant in life. Just last year, more than 30 states enacted cybersecurity-related legislation, according to the National Conference of State Legislatures. The ever-changing regulatory landscape makes staying up to date on compliance onerous for insurance companies, agents, brokers and third-party administrators.
The state-based system of insurance regulation in the U.S. can also complicate matters as the lack of standardization makes it difficult for multistate insurers to keep up with changing regulations.
Not long ago, insurance was primarily a local business where agents met directly with potential customers to discuss individual needs. Today, professionals leverage technology to market and administer products across multiple jurisdictions and, in many instances, without ever meeting in person.
While this is an exciting time to be part of the insurance industry, professionals leveraging technology must remain mindful that insurance is a highly regulated business. What's more, many laws governing the industry were enacted decades ago and don't always fit the modern insurance market.
How do agencies stay current with the fluctuating laws and regulations governing the industry across multiple jurisdictions? The most common answer is to invest in technology or hire additional staff.
The challenge with this strategy, however, is that there's a limited supply of compliance experts in the industry, who are all in high demand. In fact, The Wall Street Journal named “compliance officer” the hottest job in America a few years ago. However, hiring a seasoned compliance professional can be costly, with some commanding base salaries of more than $100,000.
Technology isn’t cheap, either—nor is it a sure thing. There are no off-the-shelf solutions that satisfy all the compliance needs and obligations of industry professionals. And developing technology internally is not feasible for most companies.
Ultimately, companies without a robust program run the risk of regulatory fines and penalties. Administrative action in one state can trigger similar actions in other states. Defending these types of actions can be extremely costly in terms of time, money and resources. The reputational damage can also be harmful to the business and may negatively impact revenue and shareholder value.
While you can certainly add to your team or invest in technology, those aren't the only options for staying abreast of all the changes facing the industry. The following strategies can help you remain compliant in the ever-changing regulatory environment:
1) Utilize trade associations. Joining a trade association is an effective way to network with industry professionals who you can turn to for advice—including how to deal with licensing and state regulatory compliance. What's more, many trade associations maintain online compliance resources, including manuals, whitepapers and training programs. They can also provide an early warning for regulatory changes impacting your industry.
2) Expand your network. If you don't want to join a trade association, look for other opportunities to expand your network. A local peer group, for example, can introduce you to people who are dealing with similar issues and challenges.
3) Consider outsourcing. Once they reach a certain scale, companies need to have dedicated compliance support. This can be accomplished by hiring compliance officers or by outsourcing some or all of your compliance functions. There are several benefits to this approach:
Compliance professionals are dedicated to your industry and familiar with the changing regulatory landscape.
Your agency can leverage and benefit from a vendor's experiences in supporting other clients with the same issues confronting your company.
Outsourcing can be more cost-effective than building your own compliance department if the vendor has made investments in staff and technology to support your business.
You access the service only when you need it. It can also help build redundancy and resiliency into your organization while reducing the risk of losing institutional knowledge if your compliance staff leaves for another organization.
No matter what strategy you choose, a thoughtful approach to compliance is your best bet. Consider regulatory impediments before launching a new product or marketing strategy, and work to find ways to stay up to speed with regulatory changes impacting your business.
The time, effort and money you spend today in implementing a thoughtful compliance strategy can help you avoid regulatory scrutiny that will negatively impact your business in the future.
Mike Griffin is the president of ACCEL Compliance and the chairman of The Professional Insurance Marketing Association’s Legal & Regulatory Interest Group.
This article originally appeared in Independent Agent magazine and is reprinted with permission.
PIMA® (Professional Insurance Marketing Association®) is a member-driven trade association focused exclusively on the group-sponsored benefits market. For more information on becoming a member, click here.