Is compliance a barrier to product development?

EDITOR’S NOTE: This article has been updated to reflect the fact that the speakers were talking about compliance issues in the context of Canadian businesses developing new cyber products. Canadian Underwriter apologizes for any confusion.

Compliance with technology and AI regulations may be a barrier to Canadian small businesses in their innovation and development of new technology.

Regulatory environment in general is increasingly more complex, especially for small businesses. But as Nicole Seymour, chief regulatory and compliance officer at Lloyds Canada, pointed out, many Canadian small businesses are only shops with five to 10 employees, so they don’t have a compliance officer, or anyone dedicated to security and compliance.

“Having a security or having a compliance officer just makes this stuff so much easier,” Steve Penney, chief technology and digital officer at BOXX Insurance, said at the Reuters Future of Insurance Canada 2023 conference in Toronto Wednesday. He noted many small businesses don’t have an individual dedicated to this function.

“But when there’s a product development opportunity, one of the key factors of the development is ensuring you have the right people at the table. So, respectfully, a lot of small businesses wouldn’t have a compliance officer, and a privacy officer, and a legal counsel, and a [chief] risk [officer]. But whoever is wearing those hats within your organization should be at the table from Day 1 on the development. It does make completing those checklists so much easier” Penney added.

“I mean, it’s been heartbreaking,” Seymour said. “You’re telling people these compliance checklists are 20 pages long. They are just checklists, right? I know they’re there to assess and mitigate the risks.

Even for insurers that want to launch new, innovative products, “there’s so much to consider when you’re looking at launching a new product,” Seymour added.  ”Insurance regulation is part of that.”

Part of the Fair Treatment of Customers insurance guidelines cover innovative technology solutions.

Privacy legislation may apply to spousal questionnaires, for example. New regulations on artificial intelligence (AI), expected next year, may require customers to know how AI applies to their insurance products or solutions. Plus, if a business has operations outside Canada, a person would have to keep up to date with U.K. regulations around technology as well.

“A lot of the times the questions you’ll get will go into even more depth,” Penney said. “You need to have the certification. So you have to take it seriously. In the worst cases, it takes small companies almost a year. It does take a lot of focus to get there.”

In some ways, this is a reason why insurance companies may have trended away from acquiring insurtechs and now work in partnerships with them, suggested Piyush Srivastava, partner and head of the North American industry advisory group at Tata Consultancy Services. It’s partly because once the insuretachs were brought in house, they had to comply with all of the various regulations governing the insurance product, so innovation came to a standstill.

Insurance companies are launching digital innovation, but not at the same pace as fintechs or insurtechs, said Srivastava.

“Smaller companies and startups have [been] built from the ground up using new technologies, so obviously they have an advantage,” he said. “Larger companies can work within an ecosystem of partners. I think we have seen that from the industry.”

Feature image courtesy of iStock.com/Laurence Dutton