Final week, each the New York Division of Monetary Companies (“DFS”) and the Nationwide Affiliation of Insurance coverage Commissioners (“NAIC”) acted on official steerage pertaining to accelerated underwriting by life insurance coverage corporations. DFS formally adopted Insurance Circular Letter No. 7 (2024), which establishes ideas for when insurance coverage carriers use synthetic intelligence in underwriting and pricing, and clarifies the pre-existing Insurance Circular Letter No. 1 (2019), which mainly issues exterior information sources and “expedited, accelerated or algorithmic underwriting course of[es] in lieu of a standard medical underwriting.”[1] The NAIC’s Accelerated Underwriting (A) Working Group met the subsequent day to contemplate feedback on its beforehand uncovered Regulatory Guidance and a referral for the Market Regulation Handbook. The working group uncovered for public remark a revised steerage doc for a two-week remark interval that’s presumably the ultimate model earlier than adoption at subsequent month’s Summer season Nationwide Assembly.
New York DFS
In January this 12 months, DFS issued the proposed round letter for public remark. That public remark interval closed in mid-March and DFS has now adopted a revised model. The clarification of Circular Letter No. 1 (2019) through Circular Letter No. 7 (2024) ties the 2 round letters collectively underlining the emphasis on exterior information sources in underwriting. Life insurers utilizing exterior shopper information and data sources (“ECDIS”), and synthetic intelligence techniques (“AIS”), for accelerated or algorithmic underwriting ought to disclose any threshold standards in related commercials and advertising and marketing supplies and in disclosures supplied to shoppers in the course of the software course of. Moreover, candidates who are usually not authorized for insurance coverage or will likely be submitted to extra underwriting should be knowledgeable of (i) the rationale, (ii) whether or not the rejection is “primarily based on particular ECDIS information,” and (iii) a “course of to assessment [the data] for accuracy.”[2]
NAIC Working Group
The Accelerated Underwriting (A) Working Group uncovered for a two-week public remark interval ending Friday July 26, 2024, what’s presumed to be the ultimate draft of the working group’s Regulatory Guidance, to be adopted on the NAIC Summer season Nationwide Assembly subsequent month in Chicago. The steerage features a background part explaining the historical past of growth of the steerage and gives context with different NAIC supplies on associated subjects corresponding to synthetic intelligence, predictive modeling, and third-party information. The steerage doc does NOT present steerage to insurance coverage carriers however moderately ideas to insurance coverage regulators when reviewing life insurance coverage carriers’ use of accelerated underwriting. The steerage is intently aligned with the NAIC AI Model Bulletin,[3] particularly on (i) an emphasis on outcomes that aren’t “unfairly discriminatory”; (ii) a required mechanism for shoppers to problem information factors and to right errors if confirmed; and (iii) required procedures for validating, testing, and/or auditing information units, together with these supplied by third-party distributors. The working group additional revised a draft referral to the Market Conduct Examination Tips (D) Working Group concerning recommended additions to the NAIC Market Regulation Handbook.
Locke Lord will proceed to observe developments on the NAIC and state insurance coverage departments. If in case you have any questions or issues please contact the writer or your Locke Lord associate.
[1] N.Y. DEPT. OF FIN. SERV., Round Letter No. 1 (2019), Re: Use of Exterior Client Knowledge and Data Supply in Underwriting for Life Insurance coverage (January 18, 2019) out there here.
[2] N.Y. DEPT. OF FIN. SERV., Round Letter No. (2024), Re: Use of Synthetic Intelligence Methods and Exterior Client Knowledge and Data Sources in Insurance coverage Underwriting and Pricing (July 11, 2024) out there here.
[3] NAIC Mannequin Bulletin: Use of Synthetic Intelligence Methods by Insurers, adopted in December 2023.
