Regulation Specter Looms Over Life Insurance

Principle-based reserving, the Department of Labor fiduciary standards, solvency assessments and the influence of regulators factor among the top trends facing life insurers in 2016, a new report states.

The Federal Insurance Office (FIO), the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR) are already having a “significant impact” on the life insurance business, according to the report.

The report on top regulatory trends in 2016 was published by the Deloitte Center for Regulatory Strategies.

“The complicated regulatory environment, the federal-state-international (regulatory) interaction, these will force changes,” said Howard Mills, a former regulator and Deloitte’s global insurance regulatory leader, in an interview Thursday with InsuranceNewsNet.

MetLife’s decision to separate its retail advisor channel and more recently AIG’s decision to sell its Advisor Group of broker-dealers are prime examples of large carriers seeking to get out of under regulatory burdens.

Ironically, the more the industry wails against regulatory burdens, the more insurance companies and distributors appear subject to them—both in breadth and in degree. Local, state and federal regulators are all in play.

“Not only are there more regulators for some insurers to satisfy — the more regulations to comply with — but there is also a more aggressive tone in the air as various regulatory entities jockey for position and assert their authority,” the report said.

Regulators ensure the industry’s ability to pay claims and public interest groups say regulation, properly applied and written in the interest of the consumer, is welcome and necessary to protect policyholders.

Unanswered Details About DOL, Fee-Based Models

Principles-based reserving and actuarial guidelines around in-house insurance companies known as captives affect carriers more than the daily dealings of retail agents and advisors. But new rules around fiduciary standards directly affect the behavior of agents and distributors.

New fiduciary rules have many insurance carrier executives talking about retargeting life and annuity products toward fee-based models. The question is how carriers plan to bake their fees into the products and how high those fees will go, Mills said.

Insurance distribution, which was built on a structure that rewarded and incentivized agents through commission-based sales and noncash rewards, helped lower the insurance costs for policyholder, Mills explained.

But under a fee-based model, which the industry has long argued will make it more expensive for agents and policyholders to do business, agents, advisors and policyholders will be looking at a very different future, Mills said.

Customer service models based on call centers and wholesalers that provide information, education and guidance to agents and consumers may also soon become unfeasible under new rules proposed by the DOL, the report said.

With the publication of the National Association of Insurance Commissioners’ Cybersecurity Bill of Rights last year, retail agents and advisors need to take computer network exposures and data breaches more seriously, Mills said.

With so much personal information stored on computers and data servers, tbe onus is on the industry like never before to protect client data from a silent and diffuse threat that many people only realize they’ve fallen victim to until after it’s too late.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].