American Bar Association’s Business Law Today - January 2024
As we have seen the rise of broader use of artificial intelligence (AI) with the launch of ChatGPT in November 2022 and the use of other platforms to create images, text, and even legal precedence that does not exist, it raises the question, how will the insurance market respond to the use of AI?
All states have enacted laws to protect against the insurance industry unfairly discriminating against policyholders from a protected class, but only a few have introduced such laws as applicable to AI, and only one state, Colorado has passed a law to directly address AI (Colo. Rev. Stat. § 10-3-1104.9). More recently, states have utilized bulletins or circular letters to convey warnings against use of data as a pretext for or with the effect of causing discriminatory practices. The Connecticut Insurance Department issued a circular advising insurers to be sensitive to the impact of “Big Data utilized as a precursor to or as a part of algorithms, predictive models, and analytic processes” on discriminatory practices.
Colorado’s 2021 law bars insurers from using algorithms or predictive models to discriminate on the basis of “race, color, national or ethnic origin, religion, sex, sexual orientation, disability, gender identity, or gender expression.” The term algorithm is defined to mean a computational or machine learning process that informs human decision-making in insurance practices. In 2023, the Colorado Division of Insurance introduced regulation to implement the 2021 law as applicable to life insurance underwriting for unfair discriminatory outcomes (3 CCR 702-10). Pennsylvania also has introduced similar laws as applicable to health insurers.
On January 17, 2024, the New York Department of Financial Services issued a circular letter applicable to life insurers regarding the use of data, which advised that the New York DFS had the right to investigate “an insurer’s underwriting criteria, programs, algorithms, and models, including within the scope of regular market conduct examinations, and to take disciplinary action, including fines, revocation and suspension of license, and the withdrawal of product forms.” California is also at the forefront of issuing these notices: its insurance commissioner put forth a bulletin warning both insurance companies and licensed insurance entities to be aware of the impact of big data and avoid discrimination and bias, even if unintentional.
Though regulation and state-mandated guidance surrounding the use of AI is inevitable, it is currently left up to the legislature in each state. While AI will breach the insurance market through insurance companies themselves or InsurTech providers, we can expect the National Association of Insurance Commissioners (NAIC) will also play a vital role in helping states shape how they will regulate use of big data, algorithms, and predictive models like AI, even if used by third parties.
Reprinted with permission from the American Bar Association’s Business Law Today January Month-In-Brief: Business & Regulated Industries.
