The COVID-19 pandemic, and the lock-down that came with it, forced many insurers to accelerate their transition to digital business models. In many areas, this transformation has been extremely successful. No less so, the crisis has highlighted the key role of the regulatory framework in both hindering and facilitating the transition to digitization in the insurance industry.

Digitalization provides insurers as well as their customers with a number of benefits. This is crucial especially when personal interactions have been minimized. Regulatory frameworks and policies play an important role in creating an enabling environment for digital insurance business models.

Digitization is not an end in itself, but it does provide benefits to insurers and their customers. These are particularly useful in situations where in-person interactions cannot take place, played out in their fullest form during the blockchain-induced COVID-19. Digitization drives growth by improving speed and efficiency, regardless of customer location, and can provide better customer service and improve customer satisfaction. However, these benefits can only be achieved if certain conditions are met. They can be ensured by an appropriate regulatory framework and a success strategy in this area play an important role in creating an environment that is conducive to digital insurance business models. 

The growing amount of data collected by various entities (health app data, telematics) can allow for better customization. This allows insurers to price risk for the customer in more detail and eliminate information asymmetries. Moreover, it enables risk mitigation as well as prevention.

Another area of regulatory importance is customer location-independent sales, supported by automated chatbots (AI technology), which can ultimately lead to finalization of insurance underwriting and issuance of electronic policies. Both the insurer and the customer, regardless of location, can be supported by video or live chat when submitting an application or filing a claim. Some insurance companies are already using more efficient risk assessment models with the support of artificial intelligence and image processing techniques. This automated claims assessment and payment with AI support and application of improved fraud prevention capabilities. 

Regulation and digital insurance business models

To get the full benefit of digitizing insurance, the sales process should be done electronically, without having to go back to paper documents or wet ink signatures. 

The development of technology in recent times, spurred mainly by COVID19 , as well as changing customer expectations and needs are happening at such a rapid pace that it is difficult for regulators to keep up. 

Insurers currently face a number of constraints. One barrier to digitization is the European Union's Insurance Distribution Directive (IDD) , which includes an implicit requirement for paper documents.

In a similar vein, the Regulation on European Packaged Retail and Insurance-Based Products (PRIIPS) was issued, which includes a provision for the issuance of paper documents. The fundamental purpose of insurance regulation is to ensure financial stability and to protect the interests of policyholders. However, regulation must balance innovation with meeting supervisory objectives. 

Obstacles to digitization come from more than just insurance regulations. For example, data protection and privacy laws may limit the use of this data for risk assessment. This data could be leveraged by strengthening the collaboration between regulators, supervisors and the insurance industry.

Current assumptions

Regardless of the technology, the regulatory framework should allow for adaptation to future technological developments, e.g. allowing for electronic signatures or biometric signatures (handwritten signatures affixed to a device capable of digitizing handwritten signatures). 

Deepening international regulatory cooperation and coordination on digitization, including sharing of best practices, can be standardized under, for example, the International Association of Insurance Supervisors.

It is worth noting that insurers may view the same regulatory framework differently. This is due to the current level of digital sophistication at the insurance company. Increased collaboration with technology (FinTech) companies that are already operating in the digital marketplace can help insurers accelerate digital transformation within the limits of the current legal and policy framework. Collaboration with regulators and policymakers on digital issues should be designed to improve mutual understanding and pave the way for removing key barriers to the digitization of the insurance market. Currently, distribution of less complex products (e.g., non-life) through digital channels is common in many markets. However, sales of more complex traditional products may still depend on face-to-face contact with customers. 

Regulatory changes may help facilitate digital distribution of more complex products. However, insurers will still need to demonstrate to regulators that distribution through digital channels does not impede regulatory and compliance goals.


Insurance regulatory frameworks are less important for digitalization than macro-level factors such as government policy, digital infrastructure and local culture Some barriers have already been removed, such as supervised entities processing information in public or hybrid cloud computing or providing robo-advisory services. Others are currently being explored such as defining separate rules and recommendations for ML/AI models (with a particular focus on deep neural networks and reinforced learning modelling methods).

It is important to note that regulatory barriers to digitization create costs for insurers and insureds. Insurers bear them through limited possibilities of using advanced methods or limited use of data sets. Insureds, on the other hand, receive a less attractive offer, i.e. de facto worse matching of products to needs.

Autor: Maciej Zabój, Manager, CEE Risk & Actuarial Services, KPMG in Poland