Critics worry about personal data in NAIC accelerated underwriting effort

Image shows the words, "Accelerated Underwriting Guidance." — Regulators want to have an accelerated underwriting guidance completed soon.

By John Hilton

Regulators rushing to finish a new accelerated underwriting guidance need to be wary of privacy concerns and the potential for discrimination, advocates said Thursday.

The Accelerated Underwriting Working Group picked up work on the guidance effort in recent months and is working swiftly to get a completed product before the National Association of Insurance Commissioners' summer meeting Aug. 12-15 in Chicago.

During a Thursday call, working group members went over several areas that generated comments from both consumer advocates and the American Council of Life Insurers. Wisconsin Insurance Commissioner Nathan Houdek, chair of the working group, said there will be one more two-week exposure for public comment on the language revisions agreed to during the call.

Public comments are due on the new version by the end of the day July 26. The plan is to adopt the accelerated underwriting guidance by early August, he added.

The guidance proposal is divided into three areas of focus: A) regulatory considerations; B) strategies for review; and C) requests for information.

'A rational explanation'

Concerns during Thuesday's call mostly dealt with the treatment of personal data insurers need to make quicker underwriting a reality. Specifically, language that calls for "a rational explanation why a rating variable is correlated to expected loss or expense, and why that correlation is consistent with the expected direction of the relationship."

Those data points pulled from random sources can often reach very inaccurate conclusions, noted Brendan M. Bridgeland, director of the Center for Insurance Research. He gave the example of smoking and weight and the general conclusion that people who smoke don't eat as much.

"You wound up with a situation where because of these multiple data points coming in, and not being clear how they function together, where people had been overcharged on mortality for many years for their weight, on the assumption that everybody who was on the thinner side, leaner side was also a smoker," Bridgeland explained.

Birny Birnbaum, executive director of the Center for Economic Justice, added his concerns about the potential for discrimination.

"The algorithm as a whole may have a discriminatory effect," he said. "So it's not just looking at a component of the algorithm or components of the algorithm. There's a need to examine the effect of the algorithm as a whole."

The guidance was amended to add "or combination of variables" to the language in question.

Adverse underwriting decisions

ACLI expressed additional concerns over how unfavorable underwriting decisions are shared with consumers. The language called for the insurer to share "all information upon which the insurer based its adverse underwriting decision."

That is too broad and possibly infringes on privacy protections, said Colin Masterson, policy analyst for ACLI.

"The current legal standard and industry practice is to provide the specific reason for the adverse underwriting decision and not all underlying information," Masterson noted. "In addition, some insurers using various third-party algorithms may be bound by contract to not disclose information regarding what are considered to be and promoted as proprietary algorithms."

Consumer adcvocates countered by noting that the Fair Credit Reporting Act is the standard for disclosure of personal information.

"The regulatory consideration really needs to spell out the fact that for those things not subject to the Fair Credit Reporting Act, the expectation is that there will be disclosure of those data items and data sources to give the consumer the opportunity to dispute the outcome," said Birny Birnbaum, executive director of the Center for Economic Justice.

Created during the NAIC's 2019 summer meeting, the Accelerated Underwriting Working Group began work with several charges.

Among them, to "consider the use of external data and data analytics in accelerated life underwriting, including consideration of the ongoing work of the Life Actuarial (A) Task Force on the issue and, if appropriate, drafting guidance for the states.”

Work was set aside for about a year while other projects advances. The working group returned to the accelerated underwriting issue in February.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.