Lawmakers Rebuke Regulators On Rate Review Technology

By John Hilton

A National Council of Insurance Legislators vote today revealed a rift with regulators that threatens to sink an effort to address systemic racism in insurance.

NCOIL members say they just want to keep lawmaking decisions in the hands of lawmakers. During a conference call, the council's executive committee passed a resolution urging the National Association of Insurance Commissioners "To Refrain from Intruding on the Constitutional Role of State Legislators."

NAIC work to review and determine rate requests is the issue that motivated the resolution, specifically the use of big data and other information technologies.

"I am not king, you are not king and certainly the NAIC is not king," said Ken Cooley, California assemblyman and vice president of NCOIL. "We are a system of laws. You can’t just pull things out of thin air. We need to anchor these ratings conversations in law."

Critics claim NCOIL is doing the industry's bidding to preserve the status quo on rate reviews. Legislators are trying to muzzle regulators from exploring solutions to proxy discrimination by insurance companies, the Consumer Federation of America said in a news release. These "race-neutral pricing factors are actually surrogates for racial discrimination," the CFA added.

CFA recently released data illustrating how this type of pricing leads to significantly higher auto insurance rates for African American drivers.

“The state legislators who supported this resolution should be ashamed of themselves,” said Robert Hunter, an actuary and former Texas insurance commissioner. “They have decided that protecting insurance companies’ unfair price discrimination that particularly hurts Black policyholders is necessary at the very time the rest of America is looking to remedy the historic and institutionalized racism that has plagued our nation for generations.”

'The Peoples' Power'

The resolution enjoyed widespread support, with many lawmakers characterizing it as a normal part of the back and forth between the two organizations. Like the insurance commissioners, NCOIL produces model laws to regulate insurance practices.

"I sort of feel like we do not have to presume to be the technical experts, but we are the defenders of the peoples’ power," Cooley said. "That to me is the heart of what this is about."

On Tuesday, the NAIC Artificial Intelligence Working Group voted unanimously to adopt "Principles for Artificial Intelligence." The document includes the phrase "AI users should proactively avoid proxy discrimination against protected classes."

Meanwhile, the NAIC Casualty Actuarial and Statistical Task Force is debating a white paper titled "Regulatory Review of Predictive Models."

The white paper drew the ire of NCOIL, with Cooley describing it as regulators freelancing too much.

"They're breaking new ground," he said. "They're not coming to us. They're presuming that the regulator can do it unilaterally, which is not the system of laws. You see it based on how they just presume to vary the basis of rating to get into requiring regulated insurance to go beyond demonstrating correlation."

The NCOIL resolution defined rate review as "based on correlation, which demonstrates that rating variables are valid so long as they correlate with a loss." Consumer-focused critics pounced on the reliance on "correlation" as a open door to discrimination.

"In the 30 years that I've been reviewing classifications the simple correlation has never been sufficient justification," said Birny Birnbaum, a former Texas insurance regulator and executive director of the Center for Economic Justice. "The resolution's references to correlation really seem to sort of reference a bygone era.

"What would the use of a criminal history score look like in the case of George Floyd if he lived?"

Floyd's May 25 death while in police custody touched off nationwide protests that continue to advocate for an end to systemic racism.

Five Voting Against

Cooley interrupted Birnbaum at the Floyd mention and reminded him that everyone is subject to the overarching laws banning discrimination.

"If the NAIC at any level wants to engage in conversations which can lead to groundbreaking innovative approaches, those discussions must run through 50 state capitals," Cooley said.

Several industry groups voiced support for the NCOIL resolution, including the National Association of Mutual Insurance Companies.

"The idea of adopting guiding principles for predictive modeling at the NAIC may be useful for regulators and the industry alike," wrote Erin Collins, vice president, state affairs for NAMIC. "However, the CASTF paper goes far beyond an aspirational or guiding source of thinking, and rather presents as instruction to regulatory staff on matters that are not in the standard of law."

Five NCOIL executive committee members voted against the resolution, which passed easily: Assemblyman Kevin Cahill (NY), Assemblywoman Pam Hunter (NY), Rep. Edmund Jordan (LA), Assemblywoman Ellen Siegel (NV), and Assemblyman Andrew Garbarino (NY).

Cooley and NCOIL executive committee president Matt Lehman agreed to put a hold on the resolution until further talks are held with the NAIC.

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.