The New York State Department of Financial Services (NYDFS) has expressed “significant concerns” about the potential for discrimination stemming from the use of artificial intelligence (AI) and external consumer data within the insurance sector. In a letter dated January 17 and addressed to insurers, the NYDFS stressed the necessity for guidance to prevent AI and external consumer data from leading to unfair outcomes, particularly in underwriting and pricing processes.
Despite acknowledging the efficiency gains linked to AI and external consumer data (ECDIS) in streamlining operations, the NYDFS underscored the threat of systemic biases that could perpetuate and worsen existing inequalities. The letter further highlighted concerns regarding the accuracy and reliability of data originating from entities not subject to regulatory oversight.
Insurers Urged to Establish Robust Governance and Risk Management
The NYDFS called on insurers to establish comprehensive governance and risk management frameworks for AI and ECDIS, aiming to minimize risks to consumers and ensure compliance with legal requirements. Seeking feedback on proposed guidance, the department set a deadline of March 17, 2024.
Insurers’ Responsibility for Anti-Discrimination Compliance Emphasized
Insurers were reminded by the NYDFS of their responsibility to comply with anti-discrimination laws, irrespective of whether they directly collect data or utilize external vendors for ECDIS or AI services. The letter stressed that insurers must not use AI or ECDIS to collect information that would otherwise be prohibited, and reliance on a vendor’s non-discrimination claims alone is insufficient.
Insurers were urged to comprehensively demonstrate that the use of ECDIS and AI avoids resulting in unfair or unlawful discrimination. The NYDFS highlighted the importance of thorough documentation, regular testing, quantitative and qualitative assessments, and appropriate oversight through corporate governance frameworks.
National and State-Level Initiatives Addressing AI Risks in Insurance
The NYDFS’s focus on potential harms from insurance AI aligns with initiatives at both national and state levels. The Colorado Division of Insurance implemented regulations governing ECDIS and AI use in life insurance last fall, effective from November 2023. California Insurance Commissioner Ricardo Lara has cautioned against the “irresponsible use” of big data leading to discriminatory outcomes.
At the national level, the National Association of Insurance Commissioners (NAIC) established the Big Data and Artificial Intelligence Working Group in 2019. In December, the NAIC’s membership voted to adopt its Model Bulletin on the Use of Artificial Intelligence Systems by Insurers, addressing concerns such as potential inaccuracies, data vulnerabilities, and discrimination and bias risks. These efforts underscore the industry’s commitment to consumer protection, fairness, and integrity.
