The Compliance Conundrum

Imagine a compliance technology system in which datafeeds from various business units can be pulled into a single dashboard to produce an aggregate view of risks, and certain workflow processes are automated.

Approximately one-third (31%) of U.S.-based chief compliance officers (CCOs) across a variety of industries say they either do not leverage this type of technology within their compliance processes or are unaware of whether they do this, according to The Compliance Journey: Boosting the Value of Compliance in a Changing Regulatory Environment, a study released by KPMG in March. Some Canadian property and casualty (P&C) insurers can likely relate to that statistic, as the focus in Canada is not necessarily leveraging technology, but updating these systems.

“I think Economical, like many of our competitors, are currently in the process of updating some very dated systems,” says Tracy Mann, vice-president of operational risk oversight at Economical Insurance. “The changes in systems offer an opportunity in that in considering the systems, we can look at building protections and controls both from preventative and detection standpoints.”

Overall, the Canadian P&C industry has “a way to go” in terms of incorporating technology, such as dashboards, that is forward-looking and can anticipate potential compliance problems, according to Mary Trussell, sector lead for KPMG Canada’s insurance practice.

Updated systems will prepare P&C insurers for new regulations, such as the Canadian Council of Insurance Regulators’ market conduct rules.

“Part of the challenge is that some of the reporting requirements [for the market conduct rules] are new and our systems were not developed to capture that information,” says Mann. “I think future systems are going to be more flexible.”

As for automated dashboards and data specialists, insurers want to incorporate those resources but they are costly and time-consuming to put in place, notes Mann.

“Those resources are in high demand. That might not be something every company can put in place. It may be a long-term goal for many companies,” she adds.

Evolving regulatory change is another key focus of the KPMG report. Only 27% of the surveyed CCOs strongly agree that they monitor and track regulatory change.

KPMG’s study also warns CCOs: watch out for your thirdparty vendors. Close to half (43%) of the surveyed CCOs either do not have, or do not know if they have, their third-party suppliers participate in their compliance training.

Ensuring the compliance of third parties is a “really live issue” for companies across industries, says Trussell.

“I think all organizations recognize they need to have a due diligence process in place as they set up new third-party arrangements,” she says. “But once these things have been in place, do they keep that due diligence up to date? Have they got any way of testing compliance in their third-party vendors?”

The report lists some best practices in ensuring the compliance of third parties, which include performing appropriate due diligence on their third party vendors, visiting the third party’s offices to witness their conduct and ensuring contracts with these vendors have clear language regarding those third parties’ responsibilities in avoiding corruption and bribery.

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Copyright © 2017 Transcontinental Media G.P. This article first appeared in the April 2017 edition of Canadian Insurance Top Broker magazine

This story was originally published by Canadian Insurance Top Broker.