How to Survive—and Thrive—Amid Regulatory Change
a company may want to create a project plan with milestones
leading up to when the regulation takes effect and any changes
that need to be implemented—while making sure the timeline is
feasible and will result in compliance with applicable regulatory
deadlines. The level of available resources should be taken into
account when creating this project plan: number of people, internal
vs. external resources, length of time to comply, and dependencies.
The number of people needed might be determined based on
the financial materiality of the regulation, the amount of effort
required, and the remaining time until regulation takes effect.
If full-time support on the new regulation is needed, it may
result in resource strain for other internal functions (“business
as usual” processes). Utilizing external resources that are familiar
with the regulation could save time and relieve pressure in the
short term, however developing internal resources to build a
knowledge base and support for the regulation in the future may
prove valuable in the long run.
Education is a key component at the early stages to stay ahead
of the regulation (and the competition). An internal committee
to address the new regulation that consists of key stakeholders
from across the organization is a good start (pricing, valuation,
financial reporting, corporate actuarial, etc.). Depending on the
level of impact and scope of the change, there may be staff solely
dedicated to this initiative. Committee members and dedicated
staff might be encouraged to participate in working groups on the
topic—including actuarial associations such as the Academy as well
as industry groups—to see how others are handling the change.
Participating in working groups can allow stakeholders to learn
about issues others are facing and how they are addressing them.
Participation in pilot studies is another great way to get insights
from regulators and put your company’s plan into action. This can
be a useful approach to receive regulatory guidance on issues you
may be facing. The company might consider sponsoring webcasts
or procuring other internal educational resources for all employees
to learn more about the regulation and its associated implications.
We see education as not a one-and-done item, but rather an ongoing
effort through the implementation date and beyond.
Companies preparing to deal with regulatory change would be
wise to consider possible downstream impacts of the change.
Some items for consideration could include:
■ ■ Business strategy: How does the overall future vision fit into
the business strategy? Is the product mix affected? Marketing?
Merger/acquisition activity? We saw this come into play with the
Affordable Care Act (ACA) and DOL fiduciary rule, both of which
are forcingcompanies to shift their product mix, commission
schedule, and, in some cases, pivot on their core business strategy.
■ ■ Capital management: Similar to the points above, how will
capital be managed? New captives? Reinsurance decisions?
Changes to investment strategy? As an example, the enactment
of Actuarial Guideline 48 caused many companies to rethink
their decisions with respect to captives.
■ ■ Regulatory compliance: How will the change be documented?
What controls will be put in place? How will this be audited?
How will the regulators react to the changes and the companies’
decisions? With Sarbanes-Oxley, Dodd-Frank and its “systemically
important financial institution” (SIFI) designations, companies
generally changed the way they thought about compliance
overnight and added very strict reporting requirements.
■ ■ Risk management: How do the decisions of the overall company
fit into the risk framework and risk appetite? Is a company
being conservative with its assumptions? Aggressive on its
tax position? Own Risk and Solvency Assessments (ORSAs)
require risk management to be taken into account, but they
do not apply to all companies and have not been adopted in
all states. There are several instances in VM- 20 in which the
Valuation Manual specifically states that the interpretation of
the regulation should be consistent with how the company
manages risk for a given business .
■ ■ Governance: Governance could be broken down into data governance, model governance, and assumption governance. How
will the new regulations impact all three buckets? Will models
need to be updated? Will new data feeds need to be created?
Will new assumptions or processes be required? VM- 20 is a
great example; the NAIC actually created a regulatory standard,
VM-G, to address governance issues.
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