New York DFS zones in on insurance coverage AI discrimination

The New York State Department of Financial Services (NYDFS) has raised “significant concerns” over the potential for insurance coverage AI and exterior client information use to end in discrimination and set out that steerage is required to make sure the know-how doesn’t drive unfair outcomes.

In a letter despatched to insurers, dated January 17, the NYDFS zoned in on underwriting and pricing, warning of the chance of “unfair adverse” results stemming from using AI and exterior client information and knowledge sources (ECDIS).

While it acknowledged that AI and ECDIS may simplify and expedite processes, the NYDFS pointed to the chance of systemic biases in ECDIS that might “reinforce and exacerbate inequality”.

Additionally, it sounded the alarm on “variable accuracy and reliability” points, with ECDIS probably coming from entities that aren’t topic to regulatory oversight.

“Furthermore, the self-learning behavior of AIS increases the risks of inaccurate, arbitrary, capricious, or unfairly discriminatory outcomes that may disproportionately affect vulnerable communities and individuals or otherwise undermine the insurance marketplace in New York,” the NYDFS stated within the round letter to insurers, fraternal profit societies, and the New York State Insurance Fund.

It is crucial that insurers that use ECDIS and AI programs applied sciences set up correct governance and threat administration frameworks to attenuate client hurt threat and guarantee they’re legally compliant, the NYDFS set out.

The NYDFS has sought suggestions on proposed steerage by March 17, 2024.

NYDFS reminds insurers of insurance coverage AI and ECDIS third-party vendor threat

Insurers had been reminded that they’re answerable for compliance with anti-discrimination legal guidelines no matter whether or not they acquire information and instantly underwrite or use exterior distributors for ECDIS or AI companies.

“An insurer may not use ECDIS or AIS to collect or use information that the insurer would otherwise be prohibited from collecting or using directly,” the NYDFS stated within the letter. “An insurer may not rely solely on a vendor’s claim of non-discrimination or a proprietary third-party process to determine compliance with anti-discrimination laws.”

Insurers ought to be capable to comprehensively reveal that any use of ECDIS and AI doesn’t end in unfair or illegal discrimination, the NYDFS stated.

NYDFS lays out steerage to make sure insurance coverage AI compliance and forestall discrimination

Compliance efforts ought to embody thorough documentation, common testing, along with quantitative and qualitative assessments, as per the NYDFS.

Corporate governance frameworks must also present acceptable oversight, the regulator set out.

It additionally pointed to the significance of threat administration and inner controls and a necessity for insurers to offer transparency round the place AI has been utilized in underwriting and pricing.

NYDFS not alone in concentrating on insurance coverage AI potential harms

New York State regulators will not be alone in focusing in on insurance coverage AI threat.

The Colorado Division of Insurance (CDI) final fall adopted regulation governing ECDIS and AI use in life insurance coverage, efficient from November 2023 and on the time hailed as a landmark step.

Insurers should “avoid both conscious and unconscious bias or discrimination that can and often does result from the use of artificial intelligence”, Lara stated in a June 2022 bulletin.

“As the insurance sector navigates the complexities of AI, the NAIC’s Model Bulletin on the Use of Artificial Intelligence Systems by Insurers provides a robust foundation to safeguard consumers, promote fairness, and uphold the highest standards of integrity within the industry,” Maryland Insurance Commissioner and NAIC Innovation, Cybersecurity, and Technology Committee chair Kathleen A. Birrane stated on the time.

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