A Comprehensive Guide on Regulatory Reporting

Industry standards are in place for a reason: they keep organizations aligned with the necessary legal and regulatory requirements to continue operating safely. However, without a strong regulatory framework and task management, regulatory reporting can cause unexpected challenges. Namely, it causes organizations to stumble into high fees that can put them in financial trouble.

In insurance, most regulatory oversight comes from state insurance departments and national bodies, such as the National Association of Insurance Commissioners (NAIC). Understanding and complying with these evolving requirements is crucial for actuarial teams and business leaders alike. Continue reading to learn more about regulatory compliance in the insurance industry, the challenges you may face, and how to optimize your approach.

The Purpose and Types of Insurance Regulatory Reporting

Regulatory reporting is the process by which businesses, particularly those in heavily regulated industries like finance, healthcare, and insurance, submit required data and disclosures to government agencies and regulatory bodies. These reports ensure compliance with laws, industry standards, and risk management requirements. Keep in mind that the specific governing body being reported to depends on the jurisdiction and nature of the company's activities.

The main purposes of regulatory reporting include:

Demonstrating Solvency and Financial Strength

Insurers must regularly file financial statements and actuarial opinions to prove they can meet their policy obligations.

Monitoring Risk Exposure

Reports help regulators assess an insurer's exposure to underwriting, investment, and operational risks.

Ensuring Fair Market Practices

Submissions like rate filings and policy forms are used to confirm that products meet state-level standards and consumer protection laws.

Transparency and Accountability

By submitting standardized data through NAIC platforms (e.g., Risk-Based Capital (RBC) filings, Annual Statements), insurers provide stakeholders with insight into financial and operational health.

Regulatory reporting encompasses various types of reports, each helping to ensure compliance and financial stability. The types of reports insurers are required to file depend on their domicile state, business lines, and corporate structure, but some of the most commonly required submissions include:

• NAIC Annual and Quarterly Statements: These standardized filings cover financial performance, investment activity, reserves, and more.
• Actuarial Opinion Summaries: Required to support reserve adequacy, these summaries help regulators understand whether insurers are sufficiently funded.
• Risk-Based Capital (RBC) Reports: RBC reports calculate the minimum capital required to support an insurer's operations given its size and risk profile.
• Own Risk and Solvency Assessment (ORSA): A narrative report that describes the company's internal risk management framework and future solvency projections.
• Market Conduct Annual Statements (MCAS): These filings help regulators assess market behavior, consumer complaints, claims handling practices, and more.
• Form and Rate Filings: Policy forms and premium rates must be submitted for review and approval in many jurisdictions before being sold to consumers.

Major Compliance Challenges and Risks

While regulatory compliance keeps companies accountable and establishes trust, it's not without its challenges. This is especially true if your business doesn't have good data management or a set reporting process in place.

Here are some of the main roadblocks you may encounter when conducting regulatory reporting:

Regulation Complexity

Each state has its own insurance laws and filing requirements. Staying compliant across multiple states requires meticulous tracking and frequent updates to internal processes. On top of that, regulatory frameworks are constantly evolving, making it difficult to keep up with new laws, reporting standards, and requirements. This is especially true for global companies that must manage requirements across country lines. If you don't have a way to keep track of continuously changing requirements, you may miss critical details that lead to fines or penalties.

Data Management

There's generally lots of data involved in the regulatory reporting process, making it difficult to manage and keep track of in an organized way. Many organizations struggle with fragmented or siloed data across systems rather than a single source of data truth. And because accurate and timely regulatory reporting relies on proper data collection, storage, and analysis, institutions that have no central place to store their information may struggle.

Compliance Cost

With new regulations being introduced regularly, maintaining compliance can be costly. This is because compliance requires significant investment in technology, legal expertise, and personnel who can stay up to date on requirement changes. And, as insurance companies partner with technology integrations or tools that can automate the process, this can add to the overall price — even if those innovations ultimately help the process.

Hackers and Cybercriminals

There were 2,365 reported cyberattacks in 2023 alone, with a total of 343,338,964 victims, according to the ITRC Annual Data Breach Report. This was 72% more data breaches than in 2021, the year that held the previous record. With the average data breach costing businesses $4.88 million, businesses need to be aware of leading cybersecurity threats.

With regulatory reports often containing sensitive financial and personal information, cybercriminals target organizations for data breaches and fraud. This can result in reputational damage, financial losses, and legal penalties for non-compliance. Additionally, customer data can get into the wrong hands, reducing client trust in your organization's capabilities to keep personal information secure.

The Benefits of Effective Regulatory Reporting

A strong regulatory reporting process is worth its weight in gold. With effective insurance regulatory reporting, your business could benefit from the following advantages:

Regulatory Compliance and Risk Mitigation

Avoid legal penalties and reputational damage by adhering to regulatory standards and keeping your data in a secure, centralized location. Additionally, you'll get a comprehensible view of your risk exposure, giving you actionable insight into areas of potential losses or issues.

Operational Efficiency

Improve how your business functions by reducing risks and streamlining processes, ultimately, enabling better decision-making. When you adhere to legal regulations, your company is less likely to be interrupted by legal trouble or financial uncertainty, freeing up your team to focus on providing high-quality services to customers.

Enhanced Data Accuracy and Transparency

Receive a clear picture of your company's financial health and practices to pinpoint areas for improvement and replicate areas that are well-protected and managed. Regulatory reporting often requires specific data quality checks, such as data profiling to identify outliers, values, and duplicates. This helps reduce errors before they impact the final reports, making sure your information is updated and correct.

Uphold Positive Brand Reputation

By complying with your state's legal requirements, you're maintaining a positive brand reputation. This shows your stakeholders, customers, and competitors that your data management and security are important. This also boosts visibility into your operations for improved internal management and allows checks and balances within decision-making.

Technology's Role In Reporting

Technology in regulatory processes transforms compliance by automating data collection, validation, and submission. AI-driven analytics improve reporting speed, accuracy, and security, making it less likely your company will experience incorrect information or misaligned details.

This is important because actuaries must adapt quickly to avoid penalties, and regulatory requirement changes aren't slowing down anytime soon. As these legal demands become more complex, companies may choose to utilize more agile tools to complete the reporting process.

Often, regulatory technology and automation tools can integrate directly into your existing systems, reducing the need for manual data collection and ensuring accurate reporting. AI-driven tools can also pinpoint anomalies, predict key risks, and keep reports aligned with the correct reporting framework and regulatory regimes.

There are three key technology advancements used in modern regulatory reporting:

1. Data engineering and cloud services: Improve efficiency and accuracy by storing, processing, and analyzing vast amounts of data in a secure location.
2. Automation and AI: Automate data collection, normalization, and report generation, giving your team time back in their days to focus on more pressing tasks.
3. Real-time monitoring and alerts: Identify and address compliance issues promptly with real-time notifications, minimizing the potential for errors or regulatory fines.

Partner With Experts

Are you ready to reduce the burden of regulatory reporting and better understand your company's risk exposure? Lewis & Ellis can help you tailor a compliance solution to fit your specific industry and business needs. We provide the following regulatory compliance services to boost transparency and operational efficiency in your organization:

• Policy form drafting and filing.
• Regulatory compliance assistance.
• Insurance law compliance.
• Compliance risk management.
• Compliance strategy planning.

Contact us to learn more about our regulatory compliance services.