Despite gains, insurance industry modernization still lags

By Doug Bailey

Modernizing the insurance industry with 21st century technology is a challenging and time consuming effort. Though great strides have been made, particularly with the advent of insurtechs encroaching on the old-line business, the industry is largely and stubbornly sticking to legacy mainframe computer systems, reams of paperwork, duplicative files, in-person interactions, “wet” signatures, and old-style notary stamps.

“Many organizations struggle to justify the cost of updating or replacing legacy systems,” said a recent report from Hitachi Solutions. “Regionalization, a constantly changing regulatory landscape, and emerging cybersecurity threats only serve to further complicate the situation, creating new and evolving challenges for insurers to contend with.”

Adopting new technology to modernize the insurance industry can mean overhauling core systems and completely transforming the business model. This is a delicate issue with most companies as things can go bad if the wrong technology is chosen. It can be both a company killer that drives up costs, and a job killer if you and your team are the ones whose decision is on the line.

In some respects, or according to some, the blame lies not with individual companies but with regulators, who have been slow to develop guidelines, procedures, and rules involving electronic processes. Companies sometimes cannot be certain how a new consumer friendly online system will comply with state regulators still married to outdated technology.

Model guidance urged

To that end, the Insured Retirement Institute (IRI) recently urged the National Association of Insurance Commissioners (NAIC) to consider issuing a model bulletin or model guidance to give businesses confidence about “operating in the modern world.”

IRI said that the insurance industry modernization guidance should address areas of electronic delivery, electronic applications, electronic signatures, and remote notarization, and lend support for modernization and support of certain technologies.

The IRI provided input to the NAIC's E-Commerce Working Group in response to the Working Group's summary and analysis following a state laws survey.

“We want to encourage adoption of NAIC model regulations and commit to working with states to seek uniform standards when it comes to various forms, documents, and other online materials,” Sarah Wood, IRI’s Director of State Policy & Regulatory Affairs, said in a letter to the NAIC’s working group. “Even one outlier can be an impediment to making any process technology changes, so increased uniformity when possible is very important.”

Wood said the IRI is particularly concerned with a mention by the Commissioners that a solution might lie in differentiating between two types of insurers and establish separate regulations for e-insurers, and others for those historically relying on paper.

An insurance industry modernization impediment?

“While it’s not clear what types of insurers or products would be included in each category, it seems as if this would simply be adding another unnecessary layer of complexity, and potentially another impediment, to uniform modernization,” she said. “This could also provide some insurers with a competitive advantage and could also cause confusion for consumers as to why the processes would be different.”

IRI outlined three principal recommendations for insurance industry modernization to the NAIC Working Group:

The need to modernize the affirmative consumer consent and reasonable demonstration requirements in the Uniform Electronic Transactions Act (UETA) and Electronic Signatures in Global and National Commerce Act (E-Sign).
Support for utilization of an electronic signature as opposed to a “wet signature” whenever possible and as a default method.
Clarification that all annuity-related disclosures and notices under NAIC model regulations do not require wet signatures or initials and may be delivered electronically.

Simultaneously, the IRI noted that the Secure Notarization Act, a version of which passed the House of Representatives earlier this year, was reintroduced in the Senate by Sen. Kevin Cramer (R-ND) and Sen. Mark Warner (D-VA).

The bill would allow notaries to perform remote online notarizations when certifying documents. It would establish minimum standards to ensure that all 50 states, the District of Columbia, and the territories of the United States recognize the use of modern technology and “enable essential transactions to be executed in a safe manner.”

The IRI had included the Secure Act in its 2023 retirement security blueprint issued earlier this year.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.