This March, The Fintech Times is shifting its spotlight towards insurtech, exploring the potential impact of blockchain technology on insurance processes and its role in instilling trust in digital transactions.

Navigating the intricacies of regulatory frameworks presents a formidable challenge for insurers operating on a global scale, as regional variations significantly influence their strategies and operations worldwide.

These regulatory disparities dictate product development, distribution methods, capital requirements, risk management practices, and market entry decisions.

To delve deeper into this, we consulted industry experts for their insights on how regional regulations shape insurers’ approaches and activities across diverse markets.

Unified approach

Regional variations in regulatory frameworks have significant impacts on insurtechs and insurers’ strategies and operations worldwide, says Caroline Hanotiau, general counsel at insurtech Qover.

“The operational complexity of managing compliance efforts and monitoring updates and changes in regulations can be resource-intensive. Additionally, stringent regulatory requirements in certain regions may act as a barrier to market entry, limiting potential expansions for insurers.

“Innovation can also be constrained by regulatory requirements in certain regions, which may restrict product development and distribution rules.

“However, at Qover, we have developed a unified API that allows us to navigate these challenges and ensure compliance across all countries, while still innovating and providing consumer protection.”

Central bank regulation

Mustafa Melhem, business development manager for insurance at Eastnets, a global provider of compliance and payment solutions for the financial services sector, addresses the importance of central bank regulation in fostering stability and mitigating fraud in well-regulated insurance markets.

“In many regions, the insurance sector is regulated directly by the central banks through a dependent or independent insurance authority. We consider these regions as well-regulated insurance markets.

“They offer a strong and stable insurance market, empower the local insurance sector, foster better partnerships with the global reinsurance and financial sectors, and protect policy holders and beneficiary rights.

“These markets also offer protection of any third parties’ rights, such as healthcare providers and other insurance service provider. They also empower the insurance companies’ solvency margins and ensure strict control of fraud and money laundering.

“In other regions, where the insurance sector is reporting to different governmental departments or ministries, the central banks are not fully involved and therefore these regions are poorly regulated. So, these markets are lacking the above benefits, which encourages increased fraud.”

Robust IT systems

“Insurers are, and have always been, under enormous pressure to make their products conform to the regulatory needs of every geography they serve,” says Sam A. Shay, creative director at Socotra, which provides a modern enterprise platform  to insurance businesses.

“Even a small insurer that sells only one basic personal auto product in the U.S. has to create a variant of that product for each state, greatly increasing the complexity of doing business across any kind of border. The resulting amount of compliance work, product definition and more that goes into growing into larger regions or offering a more expansive product portfolio can be incredibly cumbersome.

“The insurers best-poised to handle this are the ones that use IT systems with robust insurance product inheritance models that allow them to easily configure each of their products to suit every regulatory environment the product is offered in – rather than offering unique products for every geography.”

Managing compliance

“Regulatory differences significantly shape the strategies and operations of global insurers, influencing product development, distribution methods, capital requirements, risk management, compliance, and market entry, including mergers and acquisitions (M&A),” says Ryan Cox, senior director and head of AI Business at digital transformation consulting firm Synechron.

“Insurers must customise their products to comply with various regulations, align distribution strategies with legal frameworks and maintain adequate capital to meet solvency requirements. They also need region-specific risk management strategies to navigate varying compliance standards and associated costs from one region to another.

“Market entry decisions hinge largely on regulatory landscapes, with insurers preferring markets with more favourable regulations while acknowledging regulatory challenges.

“M&A activities require thorough assessment of regulatory impacts and approvals across jurisdictions. Despite regulatory complexities, insurers can find opportunities by proactively managing compliance, maintaining operational flexibility, and using technology to enhance regulatory processes’ efficiency.”

Adaptable strategies

Highlighting the dynamic impact of regional regulatory variations on insurers is Javed Akberali, co-founder and managing director of insurtech Wellx, who said:

“Regional variations in regulatory frameworks significantly impact insurers’ strategies and operations worldwide. Differences in data protection laws, licensing requirements, and compliance standards require insurers to adapt their business models and strategies to each jurisdiction.

“This variation necessitates a flexible, informed approach to global insurtech operations, underscoring the importance of understanding and navigating these disparities to succeed on the international stage.”

Legal frameworks that ensure that user privacy and the freedom to choose between central bank digital currencies and other forms of money will be key in driving CDBC adoption, according to the head of the Bank of International Settlements.

Speaking at the BIS Innovation Hub conference in Switzerland on Sept. 27, BIS general manager Agustín Carstens stressed that legal frameworks remain a key consideration in the development and proliferation of CBDCs around the world:

“Most fundamentally, the legitimacy of a CBDC will be derived from the legal authority of the central bank to issue it. That authority needs to be firmly grounded in the law.”

He added that different countries’ laws specify what types of money their central bank can issue, which typically includes physical cash as well as credit balances on current and reserve accounts:

“According to an IMF paper published in 2021, close to 80% of central banks are either not allowed to issue a digital currency under their existing laws, or the legal framework is unclear.”

Carstens also referred to a BIS study that indicates 93% of the world’s central banks are engaged in developing CBDCs at various different stages. Considering that most of these institutions are actively looking to meet public demand for digital forms of fiat, The BIS chief said outdated or unclear legal frameworks hindering their deployment was unacceptable.

Criticisms aimed at the potential misuse of CBDCs in regard to social credit scores or standings by their issuers were also addressed. According to Carstens, a CBDC needs to function with a framework of defined rights and obligations.

Related: US Democrats speak up for CBDC global leadership, Republicans fear ‘dark side’

The BIS general manager says that three core elements are imperative. This includes preserving the privacy of CBDC users and their data, the integrity of the financial system as well as the right of people to choose between a CBDC and other forms of money.

Carstens noted that different countries have differing trends relating to the use of cash and adoption of digital payments and that a retail CBDC may well be expected to coexist alongside cash and commercial bank money:

“A central bank that introduces a CBDC should increase the choices for society, not diminish them.

As previously reported by Cointelegraph, China continues to drive the development and use of its Digital Yuan CBDC program. The latest update to its pilot e-CNY app now allows tourists heading to China to pre-charge their digital yuan wallets using Visa and Mastercard payment.

Meanwhile the CBDC “Anti-Surveillance State Act” bill aimed at preventing the U.S. Federal Reserve from issuing a CBDC passed a vote in the the House Financial Services Committee on Sept. 21. The bill will head to congress next as it looks to fight “state control over currency” .