In January 2019, the New York Department of Financial Services published a circular letter to all insurers authorized to write life insurance in New York State. The letter makes it clear that insurers should not use an external data source, algorithm or predictive model in underwriting or rating unless it has been determined by the insurer (not just the vendor) that the system does not collect or use prohibited criteria.
The burden and liability lie with the insurer.
This is significant as New York’s Department of Financial Services (NYDFS) reserves the right to “audit and examine an insurer’s underwriting criteria, programs, algorithms, and models. This includes within the scope of regular market conduct examinations, and the purview to take disciplinary action, including fines, revocation and suspension of license, and the withdrawal of product forms.”
The letter addresses two areas of concern with the use of external data sources, algorithms, or predictive models in determining life insurance rates.
The letter also reminds readers about the obligation to comply with existing anti-discrimination and civil rights laws. Emphasis is on ensuring any external data sources are not unfairly discriminatory and comply with all other requirements in the Insurance Law and Insurance Regulations.
For example, Insurance Law Article 26 prohibits using race, colour, creed, national origin, status as a victim of domestic violence, or past lawful travel in any manner, among other things, in underwriting. Suppose an insurer uses an external data source, such as an algorithm trained to consider protected characteristics. In that case, the insurer is technically liable even if the algorithm is bought from an external vendor. Moreover, they would not only be in breach of the industry guidance, leaving them open to an NYDFS audit and in breach of existing anti-discrimination law.
Taking steps early is the best way to get ahead of this and other global AI regulations. At Holistic AI, we have a team of experts who, informed by relevant policies, can help you manage the risks of your AI. Reach out to us at firstname.lastname@example.org to learn more about how we can help you embrace your AI confidently.
Written by Ashyana-Jasmine Kachra, Public Policy Intern at Holistic AI. Follow her on Linkedin.
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