Innovation and Regulation: A Balancing Act for the Insurance Sector

Technological innovation is everywhere, and consumers are embracing digitally focused experiences. Digital disruptors are not only transforming their own industries but are raising the stakes for businesses across sectors. For the Canadian insurance sector, this raises a key challenge. 

Generally speaking, all regulators are challenged by the speed of technological change and the risks that insurance companies are trying to insure to in response. One reason regulators often lag behind is, quite simply, they have a limited number of sittings to focus on various issues. Another reason is regulators tend to wait and see how an industry responds to new innovations before then assessing whether or not they should step in. 

While regulations can’t be updated overnight every time an innovation springs up, it’s vital for all involved to stay ahead of disruptive technologies and make sure consumers and businesses alike are protected. 

"While regulators don’t always keep pace, fortunately the insurance industry is principles based and when looking at innovation, the general principles can be looked to for guidance." 

The automotive industry is a prime example. In the not-too-distant future, driverless cars are expected to be on Canada’s roads and highways. A report on auto insurance for automated vehicles by The Insurance Bureau of Canada¹ notes that currently, auto insurance policies prescribed in provincial laws are built on the notion that human error is the primary cause of motor vehicle collisions. However, with automated driving technology, collisions will be caused increasingly by product malfunction.

“Product liability litigation is more complex and takes years longer to resolve than traditional motor vehicle liability claims,” the report states. “Changes are needed to Canada’s auto insurance policies and supporting legislation to ensure that people injured in collisions involving automated vehicles get compensated fairly and quickly.”

While regulators don’t always keep pace, fortunately the insurance industry is principles based and when looking at innovation, the general principles can be looked to for guidance. It’s important to look at what the intention is and how it aligns with the regulations. Further, it’s critical to bring legal and compliance resources into the conversation early on.

From a product standpoint, insurance companies themselves are innovating and adapting—from something as simple as providing pink auto insurance slips electronically, to creating new products tailored to the sharing economy. For example, Sovereign’s parent company, The Co-operators, recently launched a digital insurance brand called Duuo. It offers a number of unique products, such peer-to-peer equipment rental insurance and short-term rental insurance for homeowners and property.

Technology innovations present many benefits in terms of access, speed and ease of transacting business; however, organizations offering products through new channels have to be mindful of the privacy regulations and considerations that come into play.

In the balancing act between innovation and regulation it’s critical to have collaboration between key stakeholders. That includes within an insurance company and among the product development and compliance teams, as well as with various regulators. Industry associations are doing a great job maintaining an open dialogue within the insurance industry and with regulators.  

While the pace of innovation can be challenging for the insurance sector, it also presents new possibilities that should be embraced.  


¹Insurance Bureau of Canada, “Auto Insurance for Automated Vehicles: Preparing for the Future of Mobility.” 


© 2020 The Sovereign General Insurance Compliance.  Sovereign^® is a registered trademark of The Sovereign General Insurance Company.  The Sovereign General Insurance Company is a member of The Co-operators group of Companies.  Duuo™ and Duuo by Co‑operators™ are trademarks of The Co‑operators Group Limited.