New York Issues Guidance on Use of External Data in Underwriting Life Insurance

On January 18, 2019, the New York State Department of Financial Services (“the Department”) released Insurance Circular Letter No. 1 to advise life insurers regarding the type of data that they may use when underwriting policies.  This guidance was issued after the Department conducted an investigation into insurers’ underwriting guidelines and practices, which followed reports it had received of the emergence of unconventional sources of external data available to insurers.

Circular Letter No. 1 identified two particular areas of concern regarding the use of external data sources, algorithms or predictive models that were identified during the Department’s investigation.  First, the use of such tools might unlawfully discriminate against protected classes of consumers.  Second, such tools often lack transparency for consumers.  In light of these issues, the Department provided specific guidelines on how to apply data and algorithms that help set premium rates. For example, the Department advised that an insurer must determine that external data sources or external tools do not collect or utilize prohibited criteria and, that an insurer may not simply rely on a vendor’s claim of non-discrimination or the proprietary nature of the third-party process.

For information regarding the other guidelines provided by the Department or for assistance in compliance matters relating to external data sources, please contact Westmont Associates, Inc.