02/17/21

Three Regulatory Compliance Challenges U.S. Insurers Will Face In 2021

By Cayla Cardamone

The Covid-19 pandemic brought significant changes to day-to-day life for many Americans in 2020 and forced insurers to rapidly adapt. As change continues to be a constant in 2021, insurers must respond to three challenges in the new regulatory environment:

1) New Presidential Administration

Under the Biden administration and a Democratic Party-controlled Congress, it is expected that lawmakers will hit the ground running in 2021 by making substantial changes to regulation. Many of these changes will be related to health insurance, as the nation is facing an unprecedented strain on its healthcare system due to the Covid-19 pandemic. However, sectors such as auto and life and annuities will be affected too.

As stay-at-home orders and business and school closures caused by the coronavirus outbreak reduced traffic across the country, many of the largest U.S. auto insurers took the step of returning a portion of premiums to policyholders and reducing premiums for the immediate future. The Biden administration may standardize these adjustments going forward, and auto insurers should consider making this a regular practice as drivers’ habits change.

From pandemic-related financial pressures to high mortality rates and low interest rates, the pandemic has impacted life and annuities insurers in atypical ways — creating liquidity risk. Furthermore, with Gary Gensler as President Biden’s nomination for head of the Securities and Exchange Commission, we can anticipate tougher regulations on life and annuity products to safeguard consumers.

In addition, insurers should expect a negative impact to their bottom lines from an increase in regulations that protect against discrimination and require the acknowledgement of climate change or environmental risk factors. Both issues are important to the administration’s stated values, and it will seek to address them in the near-term.

 

2) Increased Regulation of AI

As insurers increase their use of Artificial Intelligence (AI) to streamline back office functions and reduce costs, regulators want to understand what goes into the new systems that are being used for processes like underwriting and claims. In August 2020, the NAIC adopted a set of guiding principles on AI that includes five key tenets (referred to by the acronym FACTS):

  1. Fair and Ethical
  2. Accountable
  3. Compliant
  4. Transparent
  5. Secure/Safe/Robust

Regulators are trying to ensure that AI does not compromise customers’ privacy or foster discrimination through algorithms. To cooperate with this new regulatory guidance, insurers should prepare to answer questions on how they use AI and how their algorithms are configured to demonstrate that the technology is being used responsibly.

 

3) Increase in Workers’ Compensation Claims

The Covid-19 pandemic brought an upheaval to the workplace for nearly everyone in 2020. As mandated by the Occupational Health and Safety Administration, employers must protect their employees from hazards in the workplace and provide necessary personal protective equipment. If workers are exposed to, or become infected by Covid-19 at work, they may be eligible to file workers’ compensation claims depending on where they live. Claims for workers’ compensation are expected to rise in 2021, as more employees return to the office. Insurers in the workers’ compensation space and healthcare providers have adapted by allowing telemedicine as a treatment method for those filing claims.

Once Covid-19 vaccinations become widely available and the country returns to a form of normalcy, the regulatory environment will start to catch up to the changes of 2020 under the Biden administration. To stay competitive in 2021, insurers need to make proactive efforts to do right by their customers and employees to avoid regulatory troubles.

 

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