Last blog I explored our experience of compliance and the extra pressure that regulation creates for companies like ours.
As the sun sets on another year, 2016, and with compliance now inexorably entrenched as part of the landscape, it is worth asking – what as an industry do we gain from compliance, and what do we lose?
Our experience of compliance and increased regulation is that it tries to create a higher level of consistency in performance across an industry. In the case of claims services for Lloyd’s, it is clear they are trying to have a higher level of standardisation in service levels and reporting.
There is no doubt this has the intended effect of reducing the number of service providers to the industry, as to cope with the compliance demand you need to have a minimum level of business. It also creates a significant barrier to entry for new players, who need to invest heavily in IT infrastructure to be able to cope with the new demands from the industry.
So many would view this as positive…that we are enforcing a regime where a higher standard and minimum levels are required before you can supply services to the industry.
However, there are downsides to all this regulation.
First – regulation can stifle creativity. As you standardise services and mandate strict standards such as reporting you leave less room for thinking outside the square. So while you eliminate some of the poorer services that have been provided you also tend to disincentivise innovation and new thinking.
Second – regulation takes a higher toll on smaller companies. If you look at financial services, traditionally some of the new ways of thinking are promoted by smaller, agile companies. They are hungry and have to find ways to do things better and more cost effectively to compete. If you overlay high levels of regulation on smaller businesses the comparative costs can be a game changer. For instance – we as a company of 50 – have to invest to be able to comply with some exacting standards which are the same standards as global companies who have thousands of employees and compliance teams. The hit on smaller companies is a far higher percentage of revenue and we have found the price increases tolerated by the market aren’t to the same levels.
Third – it discourages new companies with innovative or disruptive platforms to enter the market. So potentially you can slow the rate of change in the industry by holding back innovation.
So compliance will come at a cost, not only to those companies forced to make significant changes to systems and processes, but also to the industry. Rationalisation of service providers has its advantages but the weight of compliance on smaller, agile companies may lead to a less dynamic and innovative industry.
Having said that, as we draw towards Christmas we see graphic images of a gunman shooting an ambassador at an art gallery opening, and a truck ploughing into a Christmas market. So while we may complain a little about levels of compliance, it would seem to be the new reality, and really, we don’t have it that bad.
From everyone at Proclaim we wish you all a very Merry Christmas and a very safe and happy holiday season.