Managing Regulatory Changes June 24, 2011

Regulatory Change Management Critical Component of successful overall regulatory compliance risk management program; When tasks associated with this issue are completed effectively the level of compliance risk is severely mitigated

External Factors/Drivers Enterprise “Risk Management” Focus –AM Best –Credit Agencies –Market Conduct Exams Regulatory Compliance Risk Management is a component piece

The Current State – Regulatory Change Management

Challenges Regulatory Activity Volume Monitoring and Filtering Lack of Visibility Miscommunication Insufficient Accountability Significant Manual Processing Involved

High Volume of Regulatory Activity YTD Citation Activity Amends New 778 – Repeals Total= 8828 Source: NILS INsource

Monitoring & Filtering Monitoring multiple sources –Industry trade associations, state websites, third party providers, etc. Capturing all relevant material is a must Filtering all activity down to only those items that impact company operations Manual process –Significant time spent sorting through multiple sources; very inefficient

Seeing only part of the picture No visibility across organization Required by multiple roles Process difficult to control

Communication is Challenging Involves many departments and roles Often inefficient & time consuming Multiple communication methods –Phone –Voice Mail – –Paper –Hallway Conversations Misinformation increases non-compliance risks

He Said She Said Lack of Accountability Decentralized Processes Business Silo’s Lack of Visibility Independent Control

Manual Process Independent Process Independent Use of Available Tools Lack of Visibility Lack of or Limited Communication Time/Cost of Resources High

Now we know the challenges….. ……..How is the industry doing?

Organizational Assessment Are we locating all legislative and regulatory developments that pertain to our business? Are we doing it in the most efficient manner? Are we consistent, accurate and timely when we analyze new regulatory activity for impact to our organization? Are we notifying the right people about regulatory changes that affect their business responsibilities? Are we providing our business areas with the information they need to effectively determine impact and develop plans for changes? Do we monitor our process? Do we support efforts by our business areas to correctly implement regulatory changes? Do we verify that regulatory changes are implemented correctly and on time – and that they stay in place? Are we reporting on key business metrics of our regulatory change management effectiveness?

6 Vital Areas of Effectiveness Acquire Analyze Distribute Monitor Verify Report

Regulatory Change Management Performance Effectiveness

Costs 1.Workflow/Processing Resource Costs 2.Compliance/Operational Costs 3.Hidden Costs

Workflow Processing Costs Costs in terms of resources, of all the tasks throughout the process that require some level of manual interaction –Obtain source material –Monitor and filter regulatory content –Gather, assemble, and distribute information –Communicate across the organization –Research of past implementations

Compliance / Operational Costs Costs incurred as a direct result of instances of non- compliance when implementation projects are left incomplete or regulatory activity is missed altogether –Market conduct examination costs & fines –Re-examination fines –Operational costs to implement/re-implement –Customer remediation costs

Hidden Costs Costs incurred as an indirect results of non- compliance, such as lost business due to a high- profile non-compliance event –Future lost business –Brand devaluation –Increased future market conduct activity costs –Opportunity costs associated with “fire drill” implementation projects

Cumulative Impact on Costs Millions of dollars, including the risk of going out of business

Ideal Solution – Key Elements 1.Gain Operational Efficiencies 2.Accountability Built Into Process 3.Robust Reporting 4.Ease of Use

Operational Efficiencies Automated Delivery of Content Powerful Filtering of Incoming Content (LOB, State, etc.) High Quality Summaries Fully Automated Communication

Accountability Built into Process –Link tasks directly with individuals –Track the progress of each task against a goal Milestone Dates –Automated Reminders –Escalation Process

Robust Reporting

Ease of Use –Flexible to Manage Different Types of Projects –High Degree of Configurability –Short Learning Curve/Quick Adoption

Effectively Managing Regulatory Change Understand the true scope of insurance regulatory content Know the potential consequences of noncompliance Identify the tools that the business needs to successfully manage and leverage regulatory content Review and report on activity across the organization Audit activities for accuracy and compliance

Thank You. Dawn Barker National Product Specialist Insurance Compliance Solutions Wolters Kluwer Financial Services