CENTER for
2023 insuranceREGULATORY
STRATEGY
regulatory outlook AMERICAS2023 insurance regulatory outlook
Contents
Introduction1
Climate change: Risk disclosure,
scenario planning, and resiliency 4
Artificial intelligence and machine learning (ML) 7
Cybersecurity and data security 10
Data privacy
Capital, reserve requirements,
and solvency monitoring15
Consumer protection 19
P&C sector
Life sector
Data and Disclosures: Take a holistic approach22
Endnotes 23
Contacts 27
2 2023 insurance regulatory outlook
Introduction
For 2023, notwithstanding ongoing macroeconomic Yet, weather-related deadly disasters that continue to
risks fueled by inflationary pressures to financial impact large population centers might prompt more
stability, there will likely be no more encompassing and fruitful across-the-aisle discussions on addressing
pressing issue for the insurance regulatory arena than protection gaps for consumers and the role of the
climate change risk and mitigation. Preparation and federal government as a backstop. Cybersecurity
application of climate risk work are expected to filter vulnerabilities and data privacy are also expected to get
through every area of the insurance sector, driven by congressional attention as bipartisan concerns.
deep-reaching rules that are either now in place or
primed for implementation.Against this backdrop, confronting the impact of climate
change has taken on even more urgency as the US
Climate change risk has been prioritized in the United population wakes up to wildfire, flooding, or windstorm
States as an urgent threat that needs to be addressed, disasters on a more frequent basis.5 The US agencies
and the insurance sector has a big part to play. The and regulators will likely be more primed to act in the
Financial Stability Oversight Council (FSOC) identified wake of deadly and destructive Hurricane Ian, especially
climate-related financial risk as an emerging threat to the given warnings from the federal government predictive
financial stability of the United States and increasingly modeling that in the future, a higher proportion of
spotlighted the Biden administration’s efforts tothe storms that form offshore will intensify to higher
manage its effects and avert a climate disaster on both category hurricanes. Treasury Secretary Janet Yellen
a market and a humanitarian basis.1 Collective global even issued a proposed data collection from insurers,
efforts to reduce the most extreme of future climate especially in the homeowners insurance lines, to assess
impacts require emissions to decrease substantially climate-related financial risk across the United States.
in this decade.2 Many leading insurance regulators are The effort to grasp these vulnerabilities “will add to
firming up their efforts and exploring ways to make sure the work of regulators and policymakers across the
coverage is available and affordable.administration to assess climate-related risks to the
financial system,” as well as the US economy and the
Consumers and regional property insurance marketspopulation, she said.6
could face instability, marked by high-priced or
inadequate coverage. Managing transition risk while On the West Coast, wildfires threaten populated
trying to keep underwriting in line with new rules and areas that they had not traditionally reached. These fast-
considerations will be at the forefront of operating in the spreading disasters are the peril that climate scientists
insurance sector.3 have seen escalate more than any other. They are
expected to be more frequent and more severe,
In addition to climate-related risks, both emerging and according to experts. Consumers and regional property
long-standing regulatory issues remain and will also insurance markets could face instability, marked by high-
drive regulatory planning and action in the coming year, priced or inadequate coverage. Managing transition risk
with everything from fact-finding discussions in the while trying to keep underwriting in line with new rules
commissioners’ office, to data calls, to proposed rules and considerations will be at the forefront of operating
and the enforcement of new ones. And the new balance in the insurance sector. Policymakers are closely
of power in Congress will mean that any legislation monitoring the growing use of artificial intelligence (AI)
must be brokered by compromise and maintain a for potential negative outcomes for large segments
moderate track. Federal agency mandates on climateamong disadvantaged groups due to potential biases
risk disclosures could be spotlighted as too onerous in that could be embedded in data inputs. For example,
future House hearings, as one side looks to curb what it the National Association of Insurance Commissioners
sees as excessive rulemaking.4 (NAIC), the organization that oversees state regulators,
has resolved to address this through an anticipated
lengthy process of identifying issues that could later
involve course correcting at the company level.7
12023 insurance regulatory outlook
An active NAIC has begun to commit to timelines
and deliverables, as underscored by the messages
from lead state officials during the NAIC Fall 2022
conference. A more focused NAIC seeking to develop
new guidance combined with active state rulemaking
activities will characterize 2023. The insurance sector
will also continue to see the expansion of cybersecurity
disclosure requirements as technology advances,
with regulators wanting to keep an eye on companies’
resilience planning, their internal controls, and their
cybersecurity training regimens. When so much is at
stake for customers with their personally identifiable
information (PII) discoverable through breaches, not
only have companies’ IT and compliance departments
prioritized data privacy hygiene, but leadership also
considers it a top priority.8
The Best Interest (BI) investment product sales standard
for annuity and other life products is now part of the
national oversight landscape. We expect an acceleration
in enforcement as federal and even state regulators
devote more resources to it after a fallow period of more
gentle guidance than enforcement.9 In fact, the head
of the Financial Industry Regulatory Authority (FINRA)Managing transition
made it clear in November that companies need to
make sure they comply with Reg BI because exams are
underway, cases are in the enforcement “pipeline,” andrisk while trying to
violations in suitability will violate the Reg BI standard as
well, potentially resulting in dual violations.10 keep underwriting in
Our outlook provides a look into these and other key
policy matters that are likely to emerge in the coming
year so that insurance professionals are better prepared line with new rules
to operationalize new rules and regulations and
anticipate emerging ones. and considerations
will be at the forefront
of operating in the
insurance sector
2
22023 capital2023 insurance markets regulatory outlook
3