Keep up with insureTech AI regulation

Insurers are prohibited from unfair discrimination in insurance practices and the use of external customer data and information sources or algorithms and predictive models that unfairly discriminate.

The Commissioner of Insurance is tasked with developing specific rules for specific insurance practices and types of insurance. Broadly, these rules must require insurers to:

• outline the type of external customer data and information sources used by their algorithms and predictive models;
• provide an explanation of how the external consumer data and information sources, and algorithms and predictive models are used;
• establish and maintain a risk management framework designed to determine whether the data or models unfairly discriminate;
• provide an assessment of the results of the risk management framework and ongoing monitoring; and
• provide an attestation by one or more officers that the risk management framework has been implemented.

Under the legislation, an algorithm is defined as a computational or machine-learning processes are used to inform human decision-making in insurance practices. A predictive model is defined as a process of using mathematical and computational methods that examine current and historical data sets for underlying pattern and calculate the probability of an outcome.

Unfair discrimination occurs when external customer data and information sources or algorithms or predictive models correlate with protected characteristics (race, color, national or ethnic origin, religion, sex, sexual orientation, disability, gender identity or gender expression) and result in a disproportionately negative outcome for these groups that exceeds the reasonable correlation to the underlying insurance practice (in respect to losses and underwriting costs etc.).

The SB21-169 legislation does not apply to title insurance, bonds executed by qualified surety companies, or insurers issuing commercial insurance policies. It does apply to insurers that issue business owners’ policies or commercial general liability policies if these policies have annual premiums of $10,000 or less.