InsurTech and innovation through the regulator’s eyes


When I left the U.S. to go overseas back in 2010, I had been in the Financial Services/Insurance industry for 4 years, all in sales roles.  It wasn’t until I was overseas that I started working in management roles.

During my time in a sales role, I never (thankfully) had to deal with any regulators.  My knowledge of how regulation worked in the U.S. was quite limited, other than the fact that I knew I needed a different ‘appointment’ to sell products in different states (to me, this meant a form and a fee) and that the state of New York usually had more onerous paperwork than other states.

My first role overseas was helping my company to set up a new Insurance entity in Poland.  This was my first taste of dealing with a regulator, as they would ultimately need to approve our set-up there.  In my subsequent roles after Poland, I had to have a much more involved understanding of market regulations, either for initiatives I was involved in and/or businesses I was leading.  

I always had the understanding of – new country, new regulation.  

When I moved back to the U.S. last year, with my newly-minted education of how Insurance works around the world, I finally came full circle to understand that my experience of different state ‘appointment’ during my sales days was just a small part of the U.S. state-based Insurance regulation model.  

While Insurance is regulated on a state level and not a federal one, the National Association of Insurance Commissioners (NAIC) is in place to help provide some level of consistency across each state where needed.  

Last week, I attended the NAIC Insurance Summit in Kansas City, MO.  The theme of the event was ‘where innovation meets regulation’.


The event had over 1,200 attendees, predominantly from the state Insurance departments, NAIC and policy/government relations/compliance teams from within Insurance carriers.

The event also included a number of innovators (both startups and incumbent technology solution providers).   The difference between this and the other conferences that I had attended though, is that the innovators were there more to teach about their technology and also learn about insurance regulation, rather than to sell.  

At many of the other events I have attended, the deal-making and networking has been off the charts.  While there was still a lot of networking here, the focus was clearly to help educate both sides of the table.

There was a clear thirst for education by the attendees, as seen by the nature of questions from and sheer number of people present in the sessions, especially in the NAIC’s Center for Insurance Policy and Research (CIPR) Innovation track (where I spent most of my time).  The attendees wanted to understand how specifically these different technologies worked and how they were being used while still protecting consumer interests.

Most of them are ultimately going to need to regulate it and it’s good that they are so interested and want to know.

Throughout the conference, I had the opportunity to have 4 discussions with 5 individuals on some of the various themes and topics focused throughout the week.  

This week’s post is a summary of those discussions.

What is the NAIC?

The NAIC was established in 1871.  According to the NAIC’s website, The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S.

The mission of the NAIC is to assist state insurance regulators, individually and collectively, in serving the public interest and achieving the following fundamental insurance regulatory goals in a responsive, efficient and cost effective manner, consistent with the wishes of its members:

  •       Protect the public interest;
  •       Promote competitive markets;
  •       Facilitate the fair and equitable treatment of insurance consumers;
  •       Promote the reliability, solvency and financial solidity of insurance institutions; and
  •       Support and improve state regulation of insurance.

As mentioned in the introduction, Insurance in the U.S. is regulated by each state individually.  

Many of the Insurers that operate in the U.S. do so in multiple states/jurisdictions (many times, in all states/jurisdictions).  In order to sell business in each state/jurisdiction, an Insurer must get licensed to do so in each one individually. They must comply with all the rules and regulations in those states/jurisdictions (something the new digital full-stack/MGAs in the U.S. are experiencing as they roll out across the country).

The NAIC helps to make sure that there is some level of standards across those states. The standards are predominantly focused on consumer protection and solvency of Insurers.  These standards must still be tailored to the specific needs of the resident state.

The NAIC not only provides standards, but also an abundance of tools and resources for Insurers, Agents and Consumers alike.  They play an integral role in the facilitation of Insurance across the United States.

NAIC’s ‘State Ahead’ Plan

With the responsibilities and mission as stated above, the NAIC needs to be extremely focused in the activities it undertakes in order to serve the needs of its 56 members.  

As such, State Ahead was created, which is the three-year blueprint for the NAIC’s future.  The focus is on three themes of:

  1.      Safe, Solvent and Stable Markets
  2.      Consumer Protection and Education
  3.      Superior Member Services and Resources

The 4 goals of State Ahead are to:

  1.      Provide insurance regulators with the data, training and tools required to support a collaborative regulatory environment that fosters stable financial markets and        reliable and affordable insurance products.
  2.      Ensure that consumer protection keeps pace with changes in the marketplace and consumers have information and education needed for informed decision-making.
  3.      Provide optimal services to support state insurance departments and equip them with the necessary talent and resources.
  4.      Optimize the efficiency and effectiveness of the NAIC structure to focus on member  priorities and maximize member engagement.

The ‘foundational pillars’ of State Ahead are data, technology and talent.  These will underpin the 3 themes and 4 goals listed above.

Denise Matthews, Data Coordination and Statistical Analysis Director at the NAIC shared with me that State Ahead ‘is to ensure that the NAIC provide products and services that are focused on the highest priorities right now of our members.’  Additionally, she shared with me that ‘technology can make regulation less burdensome to industry and may raise expectations in terms of the capabilities to comply with regulations.’

Scott Morris, CTO of the NAIC, echoed this by telling me that ‘most of it (State Ahead) is about bolstering our capabilities so that we can serve the membership and they can be prepared for the future.’  He also mentioned that ‘I would say my focus is more Reg tech these days than anything else.’

The details of the plan can be found here.  It’s quite inspiring to see such a detailed list of deliverables that are focused on the items mentioned above.  This plan was member-driven and demonstrates how the state regulators are thinking about the tools, resources and education that they will need in order to govern regulation into the future as well.  

The Innovation and Technology Task Force


The NAIC’s Innovation and Technology (EX) Task Force was formed in last 2016 and held its first meeting in April, 2017.   Scott and Denise provide NAIC staff support for this Task Force.

This Task Force has been formed to provide a forum for the discussion of innovation and technology developments in the insurance sector.  A full list of the Task Force’s remit can be found here.

One of the more cool things to be part of during the Summit was attending the Task Force meeting.  This was a unique opportunity to see a meeting of this kind live and in person.

The first agenda item was to discuss regulatory sandboxes.  There were presentations from the states of Iowa and Connecticut.  

Within the U.S., these two states have the most collaborative and flourishing ecosystems (in my opinion) between regulators, innovators and carriers.  Iowa has the Global Insurance Accelerator, which just completed its’ 4th year of operations and graduated its 4th cohort.   Connecticut has both InsurTech Hartford and Hartford InsurTech Hub within its state.  They are, in many ways, the standard for other states to follow.  

Some of the concerns I heard expressed both during the Task Force as well as after were:

1)      How to make a model sandbox for all states?

2)      How does one graduate from sandbox, do they have exemptions for whole time (and what about when they go from state to state)?

3)      What laws are precluding someone from doing innovation?

As it relates to a sandbox, my views remain largely unchanged, though I can understand the challenges with implementing a sandbox across all states/jurisdictions.   

Regardless of a formal sandbox, I still think it’s very important for carriers and/or technology solution providers to engage with the regulator early on in the process.  It does help that there is an expressed willingness by the regulators to meet with and understand these emerging technologies.

After the Task Force, I caught up with Patrick McPharlin, Director of Insurance for the state of Michigan.  Director McPharlin is the Chair of the innovation and Technology Task Force.

Director McPharlin spent the majority of his career in the banking industry.  He shared that what he is seeing now in Insurance is in comparison to what he saw in banking in the early 2000’s. ‘Innovation was just starting to change the way that you perceive financial institution.   Prior to that, if you wanted to do something, you stopped by branch. In 10 years, it has changed to first online and then mobile. This is now happening with Insurance.’

He went on to explain that, ‘In banking, we would not meet with a vendor independent of a financial institution and a financial institution would be irritated if we did, with any implication that we were recommending or approving them.  Here, it’s the opposite. It’s a different cultural thing which is quite fascinating to me.’

To this extent, he shared with me that he has had both full-stack as well as ‘plumbing’ type solutions come into his office to present their solution.

From a concern standpoint, Director McPharlin is most concerned about what goes into the product rating models and ‘how to assure they are fair and making judgements based on right factors.’  He stated that “one of the biggest tasks of an Insurer will be to explain model to the state department when they file a new product, file for rate increases or if there is a question/issue…so that when consumer complains to us, our staff has to have some sort of answer, because ‘that’s what the model said’ is not going to be sufficient.”  

The Task Force is not only focused on understanding the impact of sandboxes and new technologies to the industry, but also the ever-increasing developments in cybersecurity.



Data breaches are becoming more and more common.  The last 5 years have seen some major ones for the U.S. healthcare system.  It is ever more important for companies to be proactive, rather than reactive, when it comes to protecting their customer’s data.

In 2014, the NAIC established a task force to look at cybersecurity, Ray Farmer, Director of Insurance for the state of South Carolina shared with me.  At the time, he was the Vice Chair of the task force and explained to me that the goals of it were to ‘1) establish guiding principles, 2) develop a guide for consumers to know what to do in event of breach which included what they can expect from and what type of protection they have from an insurance company,  3) to beef up exam protocols so they are aware of cyber liability, 4) develop a supplement to annual statement and 5) develop a model law.’

The Insurance Data Security Model Law was adopted October 24, 2017 and South Carolina was the first state to adopt it and sign it into law, Director Farmer told me.  This was done in May 2018 and will go into effect January 1, 2019.  Further, he shared, ‘Licensees with employees of 10 or more will need to comply with all standards in the model, whereby those with 9 or less will still need to have cyber plans and report breaches’.  I would encourage that all companies should read the law themselves to understand what their specific obligations are.  

Despite the state-based regulatory system, the Treasury Department encouraged ‘prompt adoption of the NAIC Insurance Data Security Model Law by the states’ (page 117, second to last paragraph).  

This shows the emphasis being made on the importance of cybersecurity at both state and national levels.  

Poacher turned Gamekeeper, back to Poacher again

My last interview was with Nick Gerhart, Chief Administrative Officer of Farm Bureau Financial Services.  Nick was with American Equity Investment Life Insurance Company and Sammons Financial Group prior to joining the State Department as Insurance Commissioner.  

Now that he is back on the carrier side, Nick told me that it’s been ‘great to see the conversation evolve and feels that it’s at the level that it needs to be now’.  He went on to say that ‘I think it’s good that they (the regulators) are engaging and it’s good that they’re realizing that it’s not all threats, which is encouraging as well’.

In response to my question about whether regulation would ever keep up, or even catch up with innovation, he replied, ‘Regulation will never be ahead.  It shouldn’t be. It’s not so much can they keep up or are they left behind, it’s more about how they can create a framework and coordinate together. We have 56 jurisdictions. So the issue is not is it going to keep up, I think it is more about how well they work together on these emerging issues”

We talked about how ‘there’s huge opportunities for companies to not only digitize and make the process more efficient but also engage customers and make sure they understand the value-added services that we can offer because Insurance is going to change.  It could evolve into as much a service business as a risk transfer business at some point.’ Someday as this evolves, we could literally have to answer the fundamental question of ‘what is Insurance?’.

With that being said, he cautioned that ‘we run the risk that we digitize so much that we forget the personal humanity side of our business’.  

Using the example of a 3-second claim, he challenged carriers and innovators alike to think of what the ‘unintended consequences’ could be of any of the innovation initiatives you may be undergoing and to look at all sides of what could happen.  ‘If you are going to pay a claim in 3 seconds, that could be good, but if a consumer has a claim rejected in three seconds they’re going to feel like they got ripped off’.  He stated, ‘the humanity side of the business is paramount. Often when that customer is filing a claim it may be one of the worst days they have experienced in a long time.  Empathy matters in our industry’.


In the lead-up to the conference, I saw commercials/ads from both Facebook and Wells Fargo relating to their incidents in mishandling customer information.  

Innovation is at the forefront of discussions for the industry, no doubt.   Some of the technologies being used by innovators and technology providers will change the nature of Insurance and how we interact with our customers.

At the same time, it could potentially expose our clients and subsequently our industry, if these technologies are not handled with care.  

I agree with Nick;  regulation may not ever be in front of innovation and it shouldn’t be.

This would stifle it.

It does, however, need to be not too far behind.

It was extremely encouraging to see the NAIC and all state regulators so active and engaged in the discussion.  I feel as if they have a pretty good grasp of what the technologies are and what they are capable of.

The devil is in the detail however, and some of the concerns expressed (how models are used, how to explain the outcomes of those models and unintended consequences, amongst others), are things that all participants in the Insurtech ecosystem should keep in mind as they develop new products and solutions for the market.

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Stephen Goldstein is an experienced Insurance executive and Insurtech dealmaker with a core focus on growing revenue, launching go to market initiatives and advising industry leaders.

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