The Regulatory Framework of Insurance in 2021


The insurance industry has undergone major changes over the past year, primarily due to COVID-19. According to a survey from KPMG, 85% of CEOs in the insurance industry claim that the pandemic has sped up both digitalization of operations and the development of “next-generation operating models.” This same survey also shows that COVID-19 has spurred the creation of new revenue streams and business models.

Although these efforts were largely carried out due to necessity, the lasting impact will ultimately benefit both consumers and the insurance industry for years to come. It will lead to a more accessible, user-friendly digital insurance market where people can find and interact with a wide selection of insurers and affinity groups — all from the comfort of their homes.

However, the speed of all this change can also lead to a heightened risk of running into regulatory issues in insurance. Moving into new business models often means dealing with different laws and regulations than you might be used to, which means it’s important to tread carefully even as you move quickly.

Moreover, the combination of the pandemic’s effects and a new administration has led to more than just operational changes — it has also led to a changing regulatory landscape that is still evolving today. Companies in the insurance industry that want to stay on the right side of compliance should be aware of these changes on both a national and statewide level and have a set of best practices in place to ensure they can adapt to whatever regulatory changes come down the line.


New Trends Affecting the Regulatory Framework of Insurance

At the federal level, not much has been done yet to change laws and regulations in the insurance industry. The biggest move the Biden administration has made so far is to put proposed changes to investment advice regulations for workers and retirees into effect.

This change expanded the interpretation of fiduciary advice to include guidance regarding rollovers and individual retirement account investments. In other words, insurance companies and other financial institutions have to prove compliance with the Department of Labor’s impartial conduct standards in these areas. However, this regulatory change won’t have a huge impact on current operations because the department agreed to extend nonenforcement to Dec. 20, 2021.

Currently, the new laws regarding insurance that companies should pay attention to are mostly at the state level. These regulatory changes are a good indication of where the rest of the country is likely headed. In New Mexico, for example, there are two big pushes to watch out for. One involves short-term insurance, and the other involves the Affordable Care Act (or the ACA).

The state’s new regulatory changes to short-term insurance do three things:

  • Limit short-term insurance to three months.
  • Forbid renewals.
  • Ban the sale of new short-term plans to anyone who has had one within 12 months.

The bill was the last step in a response to the Trump administration’s 2018 move that allowed short-term insurance to be sold with extended durations unless a state had specific laws against it. New Mexico’s goal is to stabilize the individual market and better manage elements such as minimum loss ratios and benefit mandates.

When it comes to the ACA, New Mexico is attempting to replace the repealed ACA taxes on a state level for a second time in order to better subsidize its own exchange. In addition to this attempt, the state also has opened a special enrollment window for its marketplace in response to COVID-19. Other states (such as New Hampshire) have also taken this step, waiving the requirement for a qualifying event in order to enroll.

These moves indicate the more active role that both federal and state governments are likely going to play in the insurance industry and its regulations, at least over the next four years. This prediction is further confirmed by the fact that, in addition to these new regulatory stances, overall scrutiny of insurance and affinity businesses is increasing.


What Increased Scrutiny Means for the Affinity Insurance Market

Insurance departments in a number of states are paying closer attention to compliance in the insurance industry, especially when it comes to affinity groups. Although some states have always taken a closer look at the use of nonemployer groups, the trend appears to be gaining momentum.

For instance, it’s not uncommon for states to ask for background documentation to support the group policyholder itself. Specifically, many are zeroing in on policyholders set up for the sole purpose of selling insurance, regardless of the validity of the group itself. As a result, case-by-case filings are becoming more common.

We can see this trend in a variety of states, including Pennsylvania, North Carolina, and Vermont, all of which are asking more questions and reopening reviews of proposed affinity groups before they issue approvals. Even Alaska, which had been doing better at streamlining the approval process, is taking a step back and asking more questions than before.

If there was one uniform approach, this renewed scrutiny might be easier to manage. As it stands now, however, it’s hard to predict state acceptance given that insurance regulations by state are so different. To increase the likelihood of approval, the onus is on affinity businesses to make sure their groups have all their i’s dotted and t’s crossed.

Each group in the affinity insurance market needs to be transparent and prepared to provide the necessary background documentation when requested. With good bylaws and more uniform documentation — which makes sure not to involve any insurer development — these businesses have a better shot at approval.

Still, that approval is not guaranteed, meaning it will be critical to have contingency plans in place if faced with rejection.

This isn’t the only area where the insurance industry faces greater scrutiny, however. State regulators are also taking aim at marketing and advertising practices. So even if a business is compliant when it comes to its core practices, it might be time to take another look at the way it markets them.


The Consequences of Noncompliance in Insurance Marketing

Today, noncompliant marketing materials are one of the fastest ways to get hit with fines and market conduct reviews. Not only are state departments of insurance actively looking for misleading marketing, but they also receive plenty of complaints from consumers and competitors.

Here are just a few examples of the severe consequences of noncompliance:

  • An insurance broker used domain names and branding that were almost identical to those used by the official state-run health insurance exchange. The broker was charged with deceptive advertising and had to pay a $50,000 fine.
  • Two marketing companies sent out mailers that could easily be confused for government mailers. These companies specifically targeted older citizens and failed to disclose who they were and what they would do with any private information they obtained. They were each fined $40,000.
  • In New York, a number of companies were fined upward of $15 million for making misleading claims that their insurance coverage was at the lowest possible cost to its members.

The consequences of noncompliance are more than just financial, however. They also result in bad press and unwanted negative exposure. The combination of a changing regulatory landscape and increased scrutiny for insurance advertising means that companies transitioning to new strategies and business models need to take a close look at their marketing practices before putting anything into place.


How to Be Compliant With Insurance Marketing

For those whose job is to manage insurance company compliance requirements, it’s important to create a shared internal checklist that can be used to make sure everything follows regulation. When it comes to marketing, creative teams should meet with compliance and go over the steps necessary to ensure compliance in the insurance industry. Those steps might include these best practices:

  • Avoid misleading statements. If you’re unsure whether a statement is misleading, it’s safer to assume it is.
  • Avoid any branding that could potentially be construed as a government program.
  • Clearly state the type of insurance being offered as well as the fact that it is insurance.
  • List the full name of the carrier on all marketing materials.
  • If the product you’re offering has a reference number, list it on the form.

When dealing with insurance laws and regulations both new and old, the best strategy is to create a strong culture of compliance. The tone coming from the top of the company plays a major role in the approach and in the attitudes of those making risk and compliance decisions. Companies with strong compliance controls will put themselves in the best position to avoid fines and keep their officers out of the press, even in a swiftly changing regulatory landscape.

Become a PIMA member today to join the legislative and regulatory interest group and gain access to its quarterly educational sessions. To stay in the loop surrounding regulatory changes in the insurance industry, follow PIMA on LinkedIn.

Published on May 12, 2021.

PIMA® (Professional Insurance Marketing Association®) is a member-driven trade association focused exclusively on the group-sponsored benefits market.