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17 March 2017

Commercial Risk Europe: Insurance supervisors must be aware of FinTech developments


Insurance supervisors must be alert to the potential impact of innovative financial technologies and make necessary adjustments in their supervisory practices and skills, according to a report from the International Association of Insurance Supervisors (IAIS).

The report, entitled FinTech Developments in the Insurance Industry, highlights the potential impact of FinTech on insurance sector competitiveness, consumer choice, interconnectedness, business model viability and regulatory oversight, and examines the challenges and opportunities insurance supervisors face in this rapidly changing insurance environment.

The report explains that FinTech may disrupt the insurance sector by reducing insurance market competitiveness over the long term; cause traditional insurers to exit the market; result in more individualised insurance products that could affect (price) comparability and consumer choice; increase insurance sector interconnectedness due to the use of a limited number of technology platforms; and lead to changes in insurer business models if profit margins come under pressure.

In addition, fintech may increase the focus on improving the customer experience and affect the treatment of customers, possibly creating issues of affordability of insurance products, or even increased financial exclusion. It may also create issues concerning the use, ownership and protection of data. “Some of the innovations may disrupt the conventional risk pooling that is common to insurance,” states the report.

It points out that there are several challenges for insurance supervisors, including:

  • Balancing the risks and benefits of innovations and creating an environment that fosters innovation through approaches such as regulatory sandboxes or innovation hubs
  • Evaluating and, if needed, adjusting the prudential regulation framework
  • Considering the adequacy of current reporting requirements in monitoring trends and the potential build-up of risk connected to new technologies
  • Understanding how innovations work and are applied to ensure adequate assessment of new product and business models.

The IAIS report notes that the number of new companies targeting the insurance sector has significantly increased in recent years, and they are targeting all areas of the insurance value chain, from marketing and distribution through to underwriting and pricing of risks, and ultimately to settlement of claims.

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