Insurance industry reps leery of NAIC big data, AI questions

A state insurance industry regulator group intent on questioning insurers on their use of models and big data managed to unite industry and consumer representatives in opposition Wednesday.

In December, the Big Data and Artificial Intelligence Working Group exposed its draft Model and Data Regulatory Questions. The 10-page document include two sections of questions on how insurers use models, input data and use third-party data.

Regulators are meeting in Louisville for the National Association of Insurance Commissioners' spring meeting. Feedback was uniformly lukewarm to the draft.

"Asking questions about and trying to understand how an insurer developed a particular model is not a useful or relevant approach," said Birny Birnbaum, executive director of the Center for Economic Justice. "Your effort should focus on analyzing the outcomes of the models, as well as requiring insurers to test for unfair discrimination."

An NAIC-designated consumer advocate, Birnbaum's comments were later referenced in a light moment by Bob Ridgeway, senior government relations counsel, state affairs, for America's Health Insurance Plans.

"I was going to ask if perhaps there was a doctor in the house ... because I found myself agreeing with some of the points that Birny made," Ridgeway quipped.

Birnbaum and industry representatives are rarely in agreement on regulatory matters.

Turning serious, Ridgeway expressed concerns about sharing highly sensitive, proprietary information with regulators. A third-party app developer will likely be very reluctant to share highly sensitive information with government officials, he noted, who are shielded from liability by sovereign immunity.

"That, to me, is the threat," Ridgeway said. "That is why confidentiality is so critical in this instance, particularly when we're talking about the app developers information."

Insurance industry regulators cite big data concerns

NAIC regulators have placed a greater emphasis on AI, big data and related technology in recent years. Several states have adopted laws as well. Insurance industry regulators are concerned that technology will create automated processes that discriminate, even inadvertently, against consumers based on race, religion, sex or other factors.

Legislators in several states, Colorado and California, for example, have acted to rein in use of AI and big data through new laws. To date, NAIC regulators have mainly focused on gathering information. A recent survey of auto insurers found that 88% of insurers currently use, plan to use or plan to explore using artificial intelligence or machine learning as part of their everyday operations.

"We were getting a lot of anecdotal information about what big data and AI was being used," said Elizabeth Kelleher Dwyer, superintendent of banking and insurance for the Rhode Island Department of Business Regulation. "But we didn't have any actual information from companies."

David Snyder is vice president and assistant general counsel of the American Property Casualty Insurance Association. The big data questions generated "perhaps more comments from my member companies than I had ever received before," Snyder said.

"One of the real strengths of the U.S. insurance market is the diversity in business sizes and business models," he said. "So we want to try to make sure that whatever comes out of this is something that all companies can do, according to the risk that that they present and their nature, scale and complexity."

AI makes it possible for the insurance industry to offer a lot of consumer-friendly services, Snyder reminded the panel.

Premature effort?

Andrew Pauley is public policy counsel for the National Association of Mutual Insurance Companies. There is concern that the definitions and the authority given to regulators be "grounded in state law," he said.

Otherwise, he raised the issue of insurance industry regulatory overreach with the extensive questioning.

"This is not about your ability to get the information you need when you have a concern," Pauley said. "But do you need all this information upfront at the beginning? Or do you need it as concerns develop along the way, and you have to become more invasive because of lack of answers or other concerns?"

Iowa Insurance Commissioner Doug Ommen is leading the effort to finalize the questions. Regulators held a March 8 call to begin work on the issues raised in comment letters, he said.

"There are concerns that questions may contain assumptions of law that are not actually based in law," Ommen said. "There are concerns regarding the redundancy with financial examinations and concerns with the potential burden on smaller companies and small AI providers. We also need to clarify the intended use of the questions by state insurance regulators."

A revised draft of the questions is anticipated by the end of May, Ommen said.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.