Regulatory Interest in Big Data

California warns that it is watching and that "bias and discrimination in any form will be investigated and will not be tolerated."

Blue connected net of light in front of a city

The California insurance commissioner and the California Department of Insurance (CDI) issued a bulletin regarding industry bias and discrimination. The bulletin acknowledged allegations of bias and discrimination in the industry and gave notice to insurance players that the CDI is watching and that "bias and discrimination in any form will be investigated and will not be tolerated."

The bulletin is addressed to "All Admitted and Non-Admitted Insurance Companies, Licensees and Other Interested Parties" - clearly intending to cause awareness and attention beyond the carrier ecosystem.

So, what does this mean? California has been a leader in following Europe regarding consumer protection laws. The state previously followed the E.U.'s lead when it came to GDPR and implemented the California Consumer Protection Act (CCPA). Recent news from California indicates a similar pattern when it comes to AI regulation; the largest state in the U.S. - and the sixth-largest economy in the world - is likely on a faster path to follow the lead of recent regulations in the E.U.

For example, the CDI bulletin follows recent developments regarding the regulation of AI in recruiting and hiring practices in California.

See also: Key to Competitive Carrier Strategies

There are already laws in place that can be enforced when it comes to the misuse of AI, especially in cases of bias and discrimination. The bulletin cites these as "laws prohibiting discrimination with regard to insurance ratemaking, laws prohibiting discrimination in claims handling practices, laws prohibiting discrimination when accepting insurance applications and laws prohibiting discrimination when canceling or nonrenewing insurance policies."

This latest bulletin comes amid a growing area of concern and topic of discussion in the U.S. and around the world: responsible and ethical AI practices. One key challenge for the insurance industry, along with other sectors, is missing (currently protected) data. Legally, insurers can't collect certain protected data, such as race. Without this data, how can companies institute corrective measures against bias and discrimination?

Another trend is that, while the adoption of AI technology continues to expand, governance best practices have been lagging.

The CDI bulletin addresses that issue directly by stating, "The department reserves the right to audit and examine all insurer business practices including an insurer's marketing, rating, claim and underwriting criteria, programs, algorithms and models."

The wording around "business practices" signals an expectation that industry players enact life cycle governance and risk management controls. Companies without strong policies and documentation will find themselves in a very awkward position should CDI choose to exercise this right.

There have been additional developments in AI regulations, as well. Movement in AI-related regulation has been growing significantly and consistently for the past couple of years. We can expect there will be more pressure to come from governing bodies in relation to AI technology use in business as well as its impact on society as a whole.

While the California letter takes a very concerned tone regarding big data, algorithms and AI, there is still immense potential for these technologies to improve our everyday lives. The potential to provide better pricing, new products, improved customer experiences and more availability and competition stand out for the insurance business, in particular. The challenge is how to implement this innovation responsibly and ethically.

Insurance is built on decades of historical data, so we should expect and plan for that data to reflect societal inequities and injustices. If we want to disrupt insurance with innovative data and technologies, we need our leading corporations and executives to "own the history" and create more robust governance, reviews and policies across their advanced technologies. We need insurers and their partners to go beyond good intentions to build a better future.

Anthony Habayeb

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Anthony Habayeb

Anthony Habayeb is founding CEO of Monitaur, an AI governance software company, that serves highly regulated enterprises like flagship customer Progressive Insurance.


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