Increasing regulatory scrutiny
Regulators have taken notice of the growth in online policy sales and begun studying practices used by insurers to expediteunderwriting in these policies. Unlike others in the financial industry, life insurers collect and access applicants' health information. That includes data on medical conditions and prescription history which is considered classified patient health information (PHI) and personally identifiable information (PII), subject to multiple consumer data protection laws. Now, insurers are collecting large amounts of non-medical data, too.
The National Association of Insurance Commissioners (NAIC) has a group of regulator-members examining the use of external data and data analytics in accelerated life underwriting. In a draft of an educational paper expected to be approved next month, the working group said regulators must ensure that the underwriting process is “fair, transparent, and secure."
While traditional underwriting relies mostly on physical health data and some financial data, accelerated underwriting in life insurance relies on mostly behavioral data of an individual found online, predictive models and machine learning algorithms.
Concerns include the cybersecurity of the data and the potential for unfair discrimination in the underwriting process if not monitored, industry experts and consumer advocates have warned.
“Although medical data has a scientific linkage with mortality, behavioral data may lead to questionable conclusions without reasonable explanation," the working group said in the draft. Its recommendations include methods to ensure the input data is secure, transparent and reliable with a process to provide reasoning and correct potential mistakes in adverse decisions.
Consumer advocates have also cautioned over the use of nontraditional, non-medical data to predict underwrite life insurance, in place of traditional mortality tables. “Clearly, current regulatory requirements for life insurers need to be modernized for these consumer protections to be achieved," the Center for Economic Justice said in a recent letter to the working group.
The NAIC, a body of nationwide state insurance regulators, has moved to form a committee to monitor and coordinate regulatory responses to issues related to cybersecurity, innovation, data security, privacy protections and emerging technology across the industry.
The association's international counterpart, the International Association of Insurance Supervisors (IAIS) is also expected to issue a report later this year on the use of open data, artificial intelligence and machine learning in insurance underwriting.
Insurers have tried to convey to regulators that the accelerated underwriting process is less cumbersome, costs less than traditional underwriting and expedites the process for consumers, improving outcomes for consumers as well as insurers.