How Tight Should State AI Rules for Insurance Be?

A circuitry skull symbolizing artificial intelligence

Colorado regulators approved the life anti-discrimination regulation in September.

Birny Birnbaum, a consumer advocate, has been talking about the need for AI anti-discrimination rules at NAIC events for years.

The new NAIC draft bulletin reflects AI principles the NAIC adopted in 2020.

The arguments: The Innovation Committee has posted a batch of letters commenting on the first bulletin draft that reflect many of the questions shaping the drafting process.

Sarah Wood of the Insured Retirement Institute was one of the commenters talking about the reality that insurers may have to make do with what tech companies are willing and able to provide. She urged the committee “to continue approaching this issue in a thoughtful manner so as not to create an environment where only one or two vendors are available, while others that may otherwise be compliant are shut out from use by the industry.”

Scott Harrison, co-founder of the American InsurTech Council, welcomed the flexible, principles-based approach evident in the first bulletin draft, but he suggested that the committee find ways to encourage states to get on the same page and adopt the same standards. “Specifically, we have a concern that a particular AI process or business use case may be deemed appropriate in one state, and an unfair trade practice in another,” Harrison said.

Michael Conway, Colorado’s insurance commissioner, suggested that the Innovation Committee might be able to get life insurers themselves to support many of types of strong, specific rules.  “Generally speaking, we believe we have reached a large amount of consensus with the life insurance industry on our governance regulation,” he said. “In particular, an increased emphasis on insurer transparency regarding the decisions made using AI systems that impact consumers could be an area of focus.”

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Birnbaum’s Center for Economic Justice asserted that the first bulletin draft was too loose.  “We believe the process-oriented guidance presented in the bulletin will do nothing to enhance regulators’ oversight of insurers’ use of AI systems or the ability to identify and stop unfair discrimination resulting from these AI systems,” the center said.

John Finston and Kaitlin Asrow, executive deputy superintendents with the New York State Department of Financial Services, backed the idea of adding strict, specific, data-driven fairness testing strategies, such as looking at “adverse impact ratios,” or comparisons of the rates of favorable outcomes between protected groups of consumers and members of control groups, to identify any disparities.

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