This article was first published in Insurance Day

As technology plays an increasing part in the insurance process, Shehzad Alikhan, Senior Compliance Analyst at Davies says regulators are looking to tighten up the rules as to how it can be used and its impact on the customer.

The insurance industry’s talk around the move to digitalisation and digital distribution has not gone un-noticed by the regulator. The Financial Conduct Authority is already drawing up new guidance for underwriters and brokers as to the use of technology and digital platforms to transact business.

The COVID-19 pandemic has also created a new dynamic for the market. The face to face interaction which has long been part and parcel of the insurance sales and transactional process was forced to move online as the world moved quickly to remote working.

Just as the market is now looking to move to hybrid working, as technology negates the need to spend the working week in the workplace the social distancing rules have also necessitated a new way of supplying goods and services. It has seen insurers, MGAs, and brokers, look to social media and online platforms to distribute and advertise their services. This has created new opportunities for the market but it has come with a renewed interest from the FCA, which is now busy adapting its rules to ensure that clients are protected when dealing with insurers via technology.

For underwriters and brokers there is now the need to take a holistic view of how they use technology and which parts of the business are affected. The answer is every part of the business has to be aware of how technology can impact their compliance functions.

The move to social media platforms has come with an immediate issue for insurers and one that the FCA will be keen to address. With platforms such as Instagram heavily restricted with the number of characters that can be used, how do insurers place the legal notices that are required on any communication? In recent weeks we have seen store chain John Lewis forced to pull an online advert for home contents insurance cover due to what was deemed to be misleading messaging. The incident is a case in point in terms of the need for compliance teams to look into areas and departments that have not previously been on their radar.

Interestingly we have had numerous conversations with the marketing departments of our clients in recent months. The use of social or online media has changed the rules and compliance is not at the forefront of the marketing team’s minds when it come to their output. However, it has increasingly become an ever-larger distribution and branding channel and as it grows in importance, so does the attention of the regulators.

For larger entities in the market with internal compliance operations, the changes that have and will be implemented will clearly be managed. However, for MGAs and smaller underwriters and brokers which do not have a dedicated compliance function, the issue will need to be addressed and like any breaches of regulations the penalties are likely to be severe especially for any multiple or repeat breaches.

The FCA has made it clear that it will look to ensure that customers are treated fairly in every transaction, and a move to online or greater digitalisation of the press will fall under scrutiny. One of the areas which is causing concern for many underwriters is the demand from the regulator, that at renewal the customer should be advised by their current insurers to seek other quotes to ensure they are accessing the best value cover. In simple terms the FCA wants every customer, be it commercial or personal, to be treated as if they had never undertaken an insurance transaction previously.

The issue for the market is that the move to digitalisation will fundamentally change the way the industry operates. From a compliance standpoint it is likely that insurers and brokers will need to understand how the changes to the process are impacted by compliance.

Transparency is now the watchword for the industry when it comes to regulation. Speed may help the sales process, but it cannot come at the expense of the clarity demanded by the FCA and PRA. As the Business interruption disputes during COVID highlighted the accent is now on the industry to evidence that they have made every effort to ensure the policyholder understands what they have bought, the limits of the coverage, and the premium charged.

The same demands will be made during the claims process. How much information has been given to the claimant, do they understand how their claim will be managed and are they kept informed of its progress?

The benefits of technology and the move towards digitalisation are self-evident, however, they will come with new rules around the need for compliance that will need to be effectively addressed.

To continue the conversation, please get in touch with Shehzad Alikhan, Senior Compliance Analyst via Shehzad.Alikhan@davies-group.com