Crossing the shifting sands of regulation

“It isn’t the mountain ahead that wears you out, it’s the grain of sand in your shoe” – so said Canadian poet Robert William Service.

For insurers, these grains of sand – routine regulatory shifts, evolving technologies or emergent risks – can accumulate and disrupt operations if left unaddressed. Beyond the high-profile challenges, it is the cumulative effect of these pressures that often reshapes strategic priorities and stretches resources.

Indeed, the regulatory environment is constantly evolving and insurers must adapt quickly to an array of emerging risks; from new scrutiny of managing general agent (MGA) models to the rising demand for environmental, social and governance (ESG) considerations and the growing integration of artificial intelligence (AI). In a world where change is the only constant, navigating this terrain requires a multifaceted approach, with a “smorgasbord” of compliance challenges to address, each unique yet interconnected.

Pro Global audit team’s recent survey of US MGAs and third-party administrators highlighted a troubling trend: an average of five compliance issues per audit, with more than half classified as high-priority concerns. This emphasises the complexity of ensuring every part of an insurance operation remains compliant in an environment where regulatory expectations are becoming more intricate and demanding.

Increased oversight

A particularly telling example is Louisiana’s House Bill 672, which, effective from August 2024, introduces significant reporting obligations for US MGAs. This shift is not isolated but is indicative of a broader movement towards increased oversight and transparency in the MGA sector. The bill’s detailed data calls – focusing on premiums, losses and expenses – will be watched closely by other states, urging MGAs that operate in this strategically critical territory to enhance their compliance frameworks.

While these measures may feel burdensome, they also present an opportunity to strengthen resilience by preemptively addressing potential risks, ensuring stability in an evolving insurance ecosystem.

In Europe, insurers are also grappling with a series of regulatory transformations.

The ESG imperative: the EU’s Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD) regulations require stringent disclosures on ESG factors. Insurers must innovate to provide solutions that meet these evolving regulatory needs, particularly as institutions face potential liabilities for ESG non-compliance.

Dora – building digital defences: the EU Digital Operational Resilience Act (Dora), effective from January 2025, mandates enhanced cyber security measures for financial institutions. In response, insurers need to rethink their approach to cyber coverage, broadening it to include business interruption and Dora-related compliance costs, and considering resilience through the lens of supply chains and connected parties. Insurers must also invest in their own operational resilience, ensuring compliance not only for regulatory purposes but also to inspire confidence among clients in an increasingly interconnected ecosystem.

The AI Act – taming the algorithmic whirlwind: expected in 2025, the EU’s AI Act is expected to impose strict standards on AI use in high-risk financial activities. Insurers must stay ahead by focusing not only on the coverage they offer but also on how they disclose their own use of AI and the decisions made based on algorithms, ensuring transparency and accountability in their AI-driven processes.

The partnership approach

This is just a snapshot of some of the developments in the global regulatory environment in 2025 that will require insurers to take a proactive stance and there is no one-size-fits-all approach. Insurers are increasingly turning to external providers that work across leading re/insurers, leveraging their best practices and expertise. These partners offer invaluable perspectives on the common challenges faced by insurers, enabling them to better navigate the shifting landscape, to ensure that compliance is managed as efficiently and accurately as possible.

Holistic digital services and automation are becoming key enablers of not only proactive compliance but of overall operations.

There are several new ambitious, forward-thinking underwriting initiatives reshaping the Lloyd’s market at the moment. A notable example is the Lloyd’s Market Association’s report, The growth of enhanced underwriting in the Lloyd’s market: The new normal? Capturing viewpoints representing 77% of Lloyd’s 2023 gross written premium, the study underscores the transformative impact of enhanced underwriting on market dynamics.

While initiatives like enhanced underwriting and full end-to-end automation are far from maturity, they point to a clear direction of travel for the global specialty insurance sector. The intersection of compliance and algorithmic underwriting represents both a challenge and an opportunity for insurers in the face of regulatory evolution and technological transformation

Enhanced underwriting is defined as propositions that use advanced digital tools and data integration to refine underwriting decisions. The report highlights models like augmented underwriting, where human expertise is supported by data-driven insights, and pure algorithmic underwriting, characterised by no-touch, fully automated processes.

Notable implementations, including Ki and Beazley Smart Tracker, demonstrate how risk-by-risk and portfolio underwriting approaches are driving efficiency and precision. With close to $5bn in premiums already flowing through these models, representing 7% of Lloyd’s total gross written premium, and projections of substantial growth over the next decade, these initiatives are laying the groundwork for a more innovative and potentially resilient insurance marketplace.

As the report aptly concludes, these advancements have the potential not only to enhance operational efficiency but also solidify Lloyd’s leadership in managing complex, high-value risks while embracing the digital age.

While initiatives like enhanced underwriting and full end-to-end automation are far from maturity, they point to a clear direction of travel for the global specialty insurance sector. The intersection of compliance and algorithmic underwriting represents both a challenge and an opportunity for insurers in the face of regulatory evolution and technological transformation.

By aligning compliance frameworks with advanced underwriting initiatives, insurers can convert regulatory challenges into growth opportunities. A unified approach that combines technological precision, regulatory foresight, and human judgment positions the industry to navigate both emerging risks and operational complexities with agility and foresight.

Steve Lewis is chief executive and global head of claims at Pro Global