California’s Commissioner Lara Warns Insurers on the Use of Data

California Insurance Commissioner Ricardo Lara has launched an attack on the state’s insurance companies. At issue is the use of consumer data to set rates, settle claims and for other insurance uses.

He calls the use of such data potentially discriminatory.

“This has become even more of a concern as insurance companies embrace artificial intelligence and ‘Big Data’, which rely on machine learning and other tools prone to human bias when identifying trends of particular groups based on certain characteristics,” Lara’s latest bulletin says. “This technology has opened the door to an increase in unfair discrimination targeting certain groups of individuals based on characteristics not related to the risk they present.”

The commissioner calls himself a champion of all consumers and says he is committed to using all of the tools at his disposal to protect people from unfair insurance practices.

“I have serious concerns that insurance companies’ increasing use of consumers’ data will exacerbate inequities or cause consumers to be charged more, either deliberately or inadvertently,” Lara said. “Algorithms and artificial intelligence are susceptible to the same biases and discrimination we have historically seen in insurance. I am committed to fighting to protect Californians by ensuring fair and equal treatment for all, and investigating unfair and discriminatory practices.”

Lara’s bulletin “specifically reminds insurance companies and other Department licensees of their obligation to conduct business, charge premiums, investigate fraud, and pay claims in a way that avoids bias and discrimination.”

With that, Lara noted several investigations that are now underway:

1. Allegations that insurers are unfairly flagging claims from certain inner-city ZIP Codes and referring these claims to their Special Investigative Unit, resulting in many of the claimants being denied coverage or receiving low-ball offers to settle, which may result in a disproportionate number of unfair claims delays and denials to claimants from socioeconomically-disadvantaged communities. 

2. Allegations that insurers are using biometric data obtained through facial recognition technology, which a growing body of research has shown to result in discrimination across demographic groups, to influence whether to pay or deny claims.

3. Allegations that insurers, licensees, and insurance marketing institutions are collecting biometric and other personal information unrelated to risk in the marketing and underwriting of insurance policies. The use of these technologies and reliance on algorithms to decide whether to market and underwrite insurance products for a particular population creates a risk that eligibility could be denied based on race, gender, disability, or other protected classes.

To ensure that all Californians are treated equally, Lara has ordered all people engaged in the business of insurance to review all laws applicable to the business and to train their staffs in the application and compliance of those laws.

He also reminded insurers and agents that “California law prohibits discrimination in insurance ratemaking, claims handling practices, accepting insurance applications, and when canceling or nonrenewing insurance policies. Additionally, insurers and licensees must provide transparency to Californians by informing consumers of the specific reasons for any adverse underwriting decisions.”

Source link: California Department of Insurance — https://bit.ly/3usCDnX