Welcome to the age of AI Discrimination Regs. Do you have an auditing program in place? 

On July 11th, 2024, the New York State Department of Financial Services (DFS) released Circular Letter No. 2024-7 about the expectations for insurers in NYS regarding the use of Emerging Consumer Data & Information Sources (ECDIS) & Artificial Intelligence Systems (AIS) in underwriting and pricing insurance policies.

The goal of these guidelines is to ensure that all insurers adopt & manage ECDIS, AIS, & other predictive models responsibly because these models come with potential systemic biases & reliability issues that could lead to unfair discrimination or adverse effects on vulnerable communities.

Keys:

• Insurers must ensure that ECDIS & AIS complies with all relevant federal / state laws & regulations.
• Use of these models should not result in unfair discrimination, which means that data sources or models do not rely on protected classes & do not produce unfairly discriminatory outcomes.
• Use of ECDIS & AIS must be supported with generally accepted actuarial standards, demonstrating a clear, statistically significant relationship between variables used & risk.
• Insurers must regularly test & document their methodologies to ensure compliance with anti-discrimination laws & to maintain transparency.
• Effective governance frameworks should be established, with senior management & board oversight to manage the risks associated with these technologies.

DFS notes that transparency is crucial with ECDIS and AIS. Insurers must disclose to consumers whether these technologies are used in underwriting or pricing decisions & provide the specific data that influenced these decisions. 

When it comes to third-party vendors, insurers are responsible for understanding & ensuring compliance of any third-party tools, ECDIS, or AIS used. This includes having contracts that allow for audits & cooperation with regulatory inquiries.

If you'd like to read DFS's Circular Letter No. 2024-7 click here.