State Insurance Regulators Wrapping up Preliminary Guidance on Accelerated Underwriting
Last week, both the New York Department of Financial Services (“DFS”) and the National Association of Insurance Commissioners (“NAIC”) acted on official guidance pertaining to accelerated underwriting by life insurance companies. DFS formally adopted Insurance Circular Letter No. 7 (2024), which establishes principles for when insurance carriers use artificial intelligence in underwriting and pricing, and clarifies the pre-existing Insurance Circular Letter No. 1 (2019), which chiefly concerns external data sources and “expedited, accelerated or algorithmic underwriting process[es] in lieu of a traditional medical underwriting.”[1] The NAIC’s Accelerated Underwriting (A) Working Group met the next day to consider comments on its previously exposed Regulatory Guidance and a referral for the Market Regulation Handbook. The working group exposed for public comment a revised guidance document for a two-week comment period that is presumably the final version before adoption at next month’s Summer National Meeting.
New York DFS
In January this year, DFS issued the proposed circular letter for public comment. That public comment period closed in mid-March and DFS has now adopted a revised version. The clarification of Circular Letter No. 1 (2019) via Circular Letter No. 7 (2024) ties the two circular letters together underlining the emphasis on external data sources in underwriting. Life insurers using external consumer data and information sources (“ECDIS”), and artificial intelligence systems (“AIS”), for accelerated or algorithmic underwriting should disclose any threshold criteria in relevant advertisements and marketing materials and in disclosures provided to consumers during the application process. Furthermore, applicants who are not approved for insurance or will be submitted to additional underwriting must be informed of (i) the reason, (ii) whether the rejection is “based on specific ECDIS data,” and (iii) a “process to review [the data] for accuracy.”[2]
NAIC Working Group
The Accelerated Underwriting (A) Working Group exposed for a two-week public comment period ending Friday July 26, 2024, what is presumed to be the final draft of the working group’s Regulatory Guidance, to be adopted at the NAIC Summer National Meeting next month in Chicago. The guidance includes a background section explaining the history of development of the guidance and provides context with other NAIC materials on related topics such as artificial intelligence, predictive modeling, and third-party data. The guidance document does NOT provide guidance to insurance carriers but rather suggestions to insurance regulators when reviewing life insurance carriers’ use of accelerated underwriting. The guidance is closely aligned with the NAIC AI Model Bulletin,[3] in particular on (i) an emphasis on outcomes that are not “unfairly discriminatory”; (ii) a required mechanism for consumers to challenge data points and to correct mistakes if confirmed; and (iii) required procedures for validating, testing, and/or auditing data sets, including those provided by third-party vendors. The working group further revised a draft referral to the Market Conduct Examination Guidelines (D) Working Group regarding suggested additions to the NAIC Market Regulation Handbook.
Locke Lord will continue to monitor developments at the NAIC and state insurance departments. If you have any questions or concerns please contact the author or your Locke Lord partner.
[1] N.Y. DEPT. OF FIN. SERV., Circular Letter No. 1 (2019), Re: Use of External Consumer Data and Information Source in Underwriting for Life Insurance (January 18, 2019) available here.
[2] N.Y. DEPT. OF FIN. SERV., Circular Letter No. (2024), Re: Use of Artificial Intelligence Systems and External Consumer Data and Information Sources in Insurance Underwriting and Pricing (July 11, 2024) available here.
[3] NAIC Model Bulletin: Use of Artificial Intelligence Systems by Insurers, adopted in December 2023.
