Navigating the regulatory maze: Compliance and investment strategy in the insurance industry

The insurance industry operates within a complex regulatory framework designed to safeguard policyholders’ interests, maintain financial stability, and ensure sound investment practices. Central to this regulatory landscape are capital requirements, solvency regulations, and robust reporting standards, all of which profoundly influence insurers’ investment strategies and approaches to risk management.

While capital requirements, solvency regulations, and reporting standards are essential pillars of regulatory oversight, insurers must navigate a delicate balance between regulatory compliance and strategic flexibility to achieve their core objectives and deliver value to policyholders and shareholders alike.

In this post, we’ll dig into the specific challenges insurers face in maintaining this balance and how third-party providers offer a valuable tool for addressing them.

Compliance hurdles facing the insurance sector

Anti-money laundering (AML) compliance

AML compliance is a significant challenge for insurers, who face similar fraud prevention regulations as their counterparts in the banking industry. Insurers are also increasingly at risk; PwC’s most recent Global Economic Crime Survey showed that nearly two-thirds of insurance companies faced growing AML compliance irregularities in 2021.

Firms without a robust approach to mitigating risk are more likely to become unwittingly involved in financial crime, which can result in penalties from regulators and reputational damage.

Complex reporting standards

With the introduction of frameworks such as the International Financial Reporting Standard (IFRS) 17, insurance companies are required to undertake more detailed financial reporting. Reporting requirements like these affect how insurers recognise revenue and measure liabilities, increasing operational complexities. They also necessitate more sophisticated systems and processes to ensure that reporting is accurate and delivered on time.

Adapting to local and global regulations

As insurance companies expand their operations across borders, they are faced with a patchwork of local and international regulations that can vary widely and change often. This makes compliance a moving target, particularly for firms that operate in multiple jurisdictions.

Some regulations also necessitate significant investments in technology. GDPR is one example; strict data handling and privacy rules require insurers to invest heavily in cybersecurity measures and data protection protocols to secure against data breaches.

How should insurers respond?

Navigating these compliance challenges requires a proactive and adaptable compliance function that leverages technology and expertise to ensure constant alignment with global and local regulatory demands.

• Stay a step ahead of regulatory changes: Align with compliance best practices and anticipate upcoming regulations to ensure operation without compliance gaps. To do this, ensure you have dedicated staff or technology systems to alert you to jurisdictional nuances and detailed requirements
• Maintain access to the right data: Robust reporting requirements mean that firms should adopt systems that keep their data at their fingertips. It should be easy to generate financial and sustainability reporting at any time without imposing a heavy burden on staff
• Understand your portfolio: As custodians of your company’s assets, you must clearly understand your portfolio’s performance to manage opportunities and risks successfully. Seek guidance to optimise your investment strategies within regulatory guidelines, enhancing your portfolio’s profitability and sustainability

This level of flexibility is often more than in-house teams are equipped to handle—and that’s where third-party providers come in. Outsourced service providers like IQ-EQ are uniquely positioned to support insurers facing the regulatory maze with service offerings that simplify compliance, enhance operational efficiency, and foster strategic flexibility.

We provide our clients in the insurance sector with:

• Regulatory and compliance solutions: BAU compliance tasks, expert advice, secondments, project work, and hosted AIFM
• Data management and reporting: Holistic data management (data collection, aggregation, and exchange) and complete connectivity to IQ-EQ technology and systems
• Asset owner solutions: Back-office and middle-office administration and accounting services and a tech-enabled portfolio monitoring and reporting platform

Conclusion

Adaptability, innovation, and collaboration between insurers, regulators, and other stakeholders are essential for navigating the regulatory maze and driving sustainable growth in the evolving insurance landscape.

Contact IQ-EQ today to discover how our tailored solutions can help your firm transform regulatory challenges into opportunities for innovation and growth.