The New York State Division of Monetary Providers (NYDFS) has raised “important issues” over the potential for insurance coverage AI and exterior shopper information use to lead to discrimination and set out that steerage is required to make sure the expertise 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 antagonistic” results stemming from the usage of AI and exterior shopper information and data sources (ECDIS).

Whereas 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”.

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

“Moreover, the self-learning conduct of AIS will increase the dangers of inaccurate, arbitrary, capricious, or unfairly discriminatory outcomes that will disproportionately have an effect on weak communities and people or in any other case undermine the insurance coverage market in New York,” the NYDFS stated within the round letter to insurers, fraternal profit societies, and the New York State Insurance coverage Fund.

It’s crucial that insurers that use ECDIS and AI methods applied sciences set up correct governance and threat administration frameworks to attenuate shopper 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 have been reminded that they’re accountable for compliance with anti-discrimination legal guidelines no matter whether or not they gather information and immediately underwrite or use exterior distributors for ECDIS or AI companies.

“An insurer could not use ECDIS or AIS to gather or use info that the insurer would in any other case be prohibited from gathering or utilizing immediately,” the NYDFS stated within the letter. “An insurer could not rely solely on a vendor’s declare of non-discrimination or a proprietary third-party course of to find out compliance with anti-discrimination legal guidelines.”

Insurers ought to be capable to comprehensively display that any use of ECDIS and AI doesn’t lead to 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 embrace thorough documentation, common testing, along with quantitative and qualitative assessments, as per the NYDFS.

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

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

NYDFS not alone in focusing on insurance coverage AI potential harms

New York State regulators aren’t alone in focusing in on insurance coverage AI threat.

The Colorado Division of Insurance coverage (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 “keep away from each acutely aware and unconscious bias or discrimination that may and infrequently does outcome from the usage of synthetic intelligence”, Lara stated in a June 2022 bulletin.

“Because the insurance coverage sector navigates the complexities of AI, the NAIC’s Mannequin Bulletin on the Use of Synthetic Intelligence Techniques by Insurers gives a strong basis to safeguard customers, promote equity, and uphold the best requirements of integrity inside the business,” Maryland Insurance coverage Commissioner and NAIC Innovation, Cybersecurity, and Expertise Committee chair Kathleen A. Birrane stated on the time.

Received a view on insurance coverage AI use and the NYDFS letter on discrimination potential? Depart a remark beneath.