Moving From Good to Great Compliance: A Strategic Asset to Help Power Performance

December 9, 2016 by Andrew N. Mais and George Hanley

News headlines everywhere have trumpeted the consequences of compliance failures in various industries. It is thus not surprising that in an industry like insurance, which is based almost completely on trust, CEOs and boards as well as regulators are placing ever greater importance and reliance on the compliance function.

Executive Summary

Investment in the compliance function can lead to increased revenue and profit as well as lowered danger of reputational and other risks, according to new research from Deloitte. Here, Andrew Mais and George Hanley share highlights from Deloitte’s latest Insurance Ethics and Compliance Survey and provide tips for companies looking to transform their compliance function from “good” to “great.”

What may be a surprise, however, is that these demands may be more opportunity than challenge for insurers, with great compliance having the potential to be a significant asset, not a burden.

New research from Deloitte shows that investment in the compliance function is associated with increased revenue and profit as well as lowered danger of reputational and other risks. (See Deloitte’s 2016 Insurance Ethics and Compliance Survey.)

We surveyed executives from 15 of the largest U.S. life and property/casualty insurers. Companies were separated into two compliance maturity categories—higher and lower maturity—based on a self-rating of key compliance and spending parameters. Here’s what we found:

Higher-maturity life companies had an 8.1 percent average growth rate in total premiums in that period compared to a 2.5 percent average growth rate for companies with lower-maturity compliance functions. Bottom-line performance was also evidenced in higher-maturity companies—in P/C companies, the return was 240 basis points greater; in life companies, the improved return was 140 basis points.

But how does a company move from “good” to “great” compliance? Our research found that higher-maturity companies excel in four areas.

This focus on incentives echoes recent comments by William C. Dudley, president and CEO of the Federal Reserve Bank of New York. Speaking at a conference of financial services leaders in October (“Reforming Culture and Behavior in the Financial Services Industry: Expanding the Dialogue”), he noted that the industry’s culture would not change through appeals to goodness but rather from “incentives and clear accountability.”

In the future, we believe more companies will take steps to transform their compliance function. They will seek to move compliance from a transactional, process-oriented function focused on cleaning up failures to a forward-thinking, analytics-based function serving as a trusted business adviser whose aim is helping to achieve business goals. Those that do so may reap tangible financial benefits.