InsurTech definitions: what is RegTech?
An increasingly important aspect of InsurTech, RegTech is a closely-related aspect of the sector which underpins its day to day operations.
RegTech, as with many companies in the ‘-Tech’ sphere, has its origins following the 2008 financial crisis, which was the catalyst for a significant reevaluation of financial services, insurance companies and the technology and processes which held them together.
As its name implies, it is primarily concerned with managing regulations, conducting industry research and ensuring compliance with rules.
The companies themselves are differentiated from their pre-digital forerunners by their usage of cutting-edge tech solutions, such as cloud computing, data analytics, AI (artificial intelligence) and more.
The widespread integration of digital technology into so many basic areas of modern life has led to a parallel increase in illicit online activities. These include, but are not limited to, money laundering, fraudulent insurance claims and data hacks.
With high profile breaches like those at Capital One and Wirecard making headlines globally, the need for both businesses and their customers to feel protected has never been more vital; at a time when ‘data is the new oil’, sufficient safeguards must be put in place.
Collaborating with financial service providers, institutions and organisations using easy but secure data-sharing platforms like cloud, RegTech firms can easily liaise with companies and work out effective ways of preventing or eliminating threats.
Although the volumes of Big Data generated by the finance sector were previously too monolithic to wield effectively, modern data analytics powered by AI and ML (machine learning) algorithms can quickly assess information which would have been unfeasible for human workers.
Top three UK RegTech companies
: Using an analytics platform which can automatically record and collate data, the company has made significant strides since it was founded in 2010: raising $5.5mn in a Series A funding round in 2015, tripling revenues by 2017 and doubling in size by 2018.
: ClauseMatch specialises in automating process-driven tasks, collating data and facilitating collaboration. In addition to recently in the US, the company was also listed as a finalist in TechRound100’s .
: ComplyAdvantage is an award-winning organisation intent of using data to change the way companies operate. Currently serving 500 customers in 75 countries across three continents, it is able to streamline data review processes from months to minutes.
FCA bans ‘price walking’ for insurers from Jan 2022
Insurers will no longer be allowed to raise premiums upon annual customer renewals following a new ruling by the Financial Conduct Authority (FCA)
The new move, which comes into effect in January 2022, will directly affect people renewing their home or motor insurance because they will pay no more for their premiums than a new customer.
The FCA said the change will save loyal customers an estimated £4.2bn over a 10-year-period. However, it also admitted the move could mean cheaper deals for new customers can no longer be sustainable for insurers attempting to attract business.
Price walking practices ended
According to reports, the FCA has been working on changing the rules on ‘price walking’ as it is termed, because customers are charged more their annual premiums, even though their level of risk remains the same. The system has resulted in complaints from consumer groups that loyal customers pay more unnecessarily.
"These measures will put an end to the very high prices paid by many loyal customers. Consumers can still benefit from shopping around or negotiating with their current provider, but won't be charged more at renewal just for being an existing customer."
Victory for the customer
Consumer groups have hailed the change as a victory for customers who have ended up paying higher premiums unnecessarily, but admitted it presented huge implications for insurers in the short term.
Consumer Intelligence CEO, Ian Hughes said, “These changes represent a tsunami for both insurers and their customers, but we should be in no doubt that the fault line that sits underneath this is fair value, mentioned 153 times in the final statement. GIPP changes will feel like just a ripple for those who don’t offer fair value to customers."
He continued, “This is going to be a bumpy ride for insurance brands and consumers alike in the short term. Today, the FCA has revealed that cash and cash-equivalent incentives, other than toys and carbon off setting, cannot be used to entice new customers without being offered to renewing customers. This means the savviest consumers who shop around each year will see prices rise and discounts and offers disappear.
“However, there is an opportunity for the industry to take advantage of all this change that is coming and do something that will be good for brands, good for the industry and good for consumers."
Consumer Intelligence PR and communications manager, Catherine Carey agreed, and described the victory as “a shot in the arm for innovation.”
Carey said the move “presses a giant reset button on the relationship between price and value, it will change the relationship between brands and consumers.”
She explained, “We expect to see insurers changing their models and new firms entering the market for the first time as loss-making year one pricing phases out. If you look at these new rules, and specifically the introduction of fair value, it’s the most exciting time for the development of the general insurance market for decades.”
Hughes also warned against insurers resisting the regulatory change, “Those that don’t take advantage of the opportunity are going to find it really tough.”
He added, “The tipping point we find ourselves at today is a critical point in the journey of this industry and there is an opportunity to be positive.”