Maria Vullo (Photo: NYDFS)
The New York State Department of Financial Services wants life insurers to prove that the new accelerated underwriting programs they're using are reasonable, fair and transparent.
The department has sent all life insurers authorized to write coverage in the state a letter warning them about their responsibility to vet any "external consumer data and information sources," or services, they use when looking at applicants for coverage.
Officials give their thinking on the matter in Insurance Circular Letter Number 1 (2019), which has the title, "Use of External Consumer Data and Information Sources in Underwriting for Life Insurance."
The Words
"External consumer data" refers generally to information provided by independent database managers, rather than by the applicants themselves.
For purposes of the circular letter, officials say, the term "external data" includes "any data or information sources not directly related to the medical condition of the applicant that is used — in whole or in part — to supplement traditional medical underwriting, as a proxy for traditional medical underwriting, or to establish 'lifestyle indicators' that may contribute to an underwriting assessment of an applicant for life insurance coverage."
The History
Birny Birnbaum and other consumer representatives have been saying at National Association of Insurance Commissioners meetings for years that insurers and other financial services companies could use new types of data sources, collections of rules for automated data analysis, and artificial intelligence systems to discriminate.
Rep. Maxine Waters, D-Calif., the new House Financial Services Committee chair, has been an outspoken critic of lenders' use of algorithms and data sources that appear to hurt African-American consumers' ability to borrow money.
The New York department sent life insurers a request for information about their use of external data sources in June 2017.
The Philosophy
Officials acknowledge in the letter that use of nontraditional data sources and automated "algorithms," or rules for analyzing the data, may have a place in life insurance underwriting.
"Insurers' use of external data sources has the potential to benefit insurers and consumers alike, by simplifying and expediting life insurance sales and underwriting processes," officials write. "External data sources also have the potential to result in more accurate underwriting and pricing of life insurance."
But officials say they worry life insurers could use their own "algorithmic" underwriting systems, or algorithmic systems from outside vendors, to discriminate, to violate New York state insurance laws in other ways, or to hide the reasons for denials from the applicants.
New York state insurance prohibits use of race, color, creed, national origin, status as a victim of domestic violence, or past lawful travel in any manner in insurance underwriting, officials say.
New York state insurance laws also restrict use of information about physical or mental disability, impairment or disease, unless any coverage access or pricing difference due to one of those factors is "permitted by law or regulation and is based on sound actuarial principles or is related to actual or reasonably anticipated experience," officials say.
"Other models and algorithms purport to make predictions about a consumer's health status based on the consumer's retail purchase history; social media, internet or mobile activity; geographic location tracking; the condition or type of an applicant's electronic devices (and any systems or applications operating thereon); or based on how the consumer appears in a photograph," officials say. "At the very least, the use of these models may either lack a sufficient rationale or actuarial basis and may also have a strong potential to have a disparate impact on the protected classes identified in New York and federal law."
The Standards
Officials emphasize that insurers are responsible for complying with New York state's anti-discrimination laws.
"An insurer may not use an external data source to collect or use information that the insurer would otherwise be prohibited from collecting or using directly," officials say.
