Why Compliance as a Service (CaaS) Is the Insurance Industry’s Next Big Breakthrough
June 11, 2021
If you’ve spent any time in the insurance industry, “compliance” is undoubtedly a word you’ve heard far too often, yet also still feel largely unprepared to handle. Is compliance a true concern, an industry buzzword, or just a major headache? Across a wide number of industries in the U.S., from banking and financial services, to internet technology, to insurance, it’s increasingly all of the above.
It might feel like all the talk of compliance is overblown. Can it really be that difficult to keep your organization and its employees in line with all government regulations? Unfortunately, the evidence points to “yes,” as the number of violations continues to go up across many different industries each year. Perhaps compliance has always been an issue – and a pain point – but in the wake of several high-profile cases in recent years, regulators are cracking down on enforcement.
Some businesses may believe they’re safe from government scrutiny due to their small size, or being domiciled in a state without much enforcement manpower. The flaw in this logic is that within the insurance industry, carriers, MGAs, insurance agencies, and agents are required to comply with the laws of any state where they do business.
Sorry, small agency in Kansas: This means you’re not safe from the tens of millions of dollars of fines Texas has imposed on insurance agencies and producers in the last year, if you sell a single policy there!
Compliance within the insurance industry is a particularly tricky situation with laws that vary from state to state and among different lines of business. An agency that sells home, auto, and general commercial liability insurance in all 50 states and the District of Columbia, for example, could be subject to more than 150 different sets of rules, holding their producers to different standards across states and lines of coverage.
The solution may seem simple: Everyone should just follow the strictest state’s laws, no matter what. Unfortunately, that doesn’t work, either. Following one state’s regulations, even if strict, isn’t the same as following them all. And then there are states that seem to have strict regulations, only to throw in a curveball with something more lenient than you’d expect (Florida, we’re looking at you!). The bottom line is, when it comes to state-by-state insurance regulations, you can’t take anything for granted. That’s why staying in compliance is so complicated!
Just as there’s no lack of government rules and regulations, there’s no lack of information on compliance out there. In fact, there’s so much information that it’s difficult to make sense of it, or determine what’s true and what’s applicable to any individual situation. What’s an insurance company, agency, or individual producer to do?
For some larger organizations, the answer is to employ a chief compliance officer or even a whole team dedicated to compliance. For smaller companies and agencies that may not be able to afford those types of internal resources, the answer may be to outsource the entire burden to a compliance consultant. Both of these options are still pricey and have downsides of their own.
This is where a new breed of solutions offering compliance as a service (CaaS) is emerging to provide another option that’s flexible enough to work for stakeholders across the insurance industry from the largest insurance carriers to the smallest independent agencies.
What is CaaS?
In recent years, many industries have exploded with new technologies providing old-fashioned products and services in a new way. Instead of building or buying software, we now have software as a service. Instead of hiring a lawyer, many online tech companies provide subscription-based “legal as a service.” Compliance as a service (CaaS) is the idea of taking the traditional role of a static compliance officer or team and using technology to automate the complex tasks in real-time to provide a comprehensive compliance service that businesses can purchase and scale to meet their needs.
How does CaaS work?
The technology behind CaaS products may be complex, but the way it works is actually simple. Using databases and software, a CaaS solution compares global rules against a specific company’s own data, looking for instances of inconsistency, that is, potential areas of non-compliance. The software then flags these instances for a person or team to review and correct.
When it comes to how well a CaaS solution works, the quality of its data sources is paramount. It’s vital that the software has access to a single source of truth, and that it receives continuous updates when information changes. A CaaS solution that relies on multiple sources or static sources of data can quickly become out of date and ineffective, particularly if those sources require manual entry from one or more people. How much risk a business takes on can easily be partially quantified as how much time passes between consecutive static data syncs.
Who can benefit from CaaS?
We would like to say “everyone,” but as CaaS providers, we might be a tiny bit biased. However, when speaking about the insurance industry, the idea that CaaS technology benefits all stakeholders is not an exaggeration.
Each member of the insurance distribution channel spends a lot of time, arguably more time than they need to, worrying about complying with all applicable laws and regulations. Even for the smallest agencies, knowing their compliance is being taken care of without hours of manual effort can allow them to confidently expand their sales territory into additional states, thus bringing in more revenue for the agency without a proportionate amount of extra paperwork.
The larger the organization and the faster the organization is growing their distribution channels, the more obvious the benefits of CaaS become. For the country’s largest and fastest-growing agencies with hundreds to thousands of individual producers to keep track of, or for insurance carriers or MGAs who are constantly appointing and terminating appointments for hundreds to thousands of agents, CaaS solutions can be a game changer.
Why choose CaaS?
Imagine a world where keeping track of new and changing laws within the insurance industry isn’t top of mind at all times. With CaaS solutions, this can truly be a reality.
The cost of CaaS vs. the cost of noncompliance
“OK, but how much is this going to cost me?”
For obvious reasons, price is always a concern when a business is looking to solve its pain points. Using a CaaS solution can prove to be a very cost-effective way to truly manage compliance without relying on hours upon hours of skilled employees’ time doing what a smart and connected technology can do in an instant.
When an organization switches to a CaaS model, it frees up a number of people within the company to do the jobs you really need them to do. From compliance officers and legal teams to the agents and producers themselves, everyone can work more efficiently when they know they’ll be alerted if and when there is a compliance issue to address, rather than spending valuable time searching for these issues in the first place and keeping up with all of the requirements for all states.
On top of better using everyone’s time more effectively and with a higher return on investment, a CaaS solution can help companies reduce the monetary and non-monetary costs associated with compliance violations. Within the insurance industry, state and federal governments jointly impose tens of millions of dollars each year on insurance carriers, agencies, and agents whose practices don’t measure up to the stringent standards. Most would agree the cost of implementing a CaaS solution is minor compared to the potential penalties incurred even for unintentional compliance mistakes. Take those hard dollars and add the cost of having your company appear in the headlines, and those are high stakes for any insurance company to ignore.