NY Issues Rules on Big Data & Underwriting
The New York Department of Financial Services (DFS) issued Insurance Circular Letter No. 1 (2019) on Jan. 18 to address the use of external consumer data and information sources in the underwriting of life insurance. The DFS determined that insurers’ use of external data sources in underwriting has the strong potential to mask prohibited forms of discrimination.
The DFS says insurers should not use an external data source, algorithm, or predictive model in underwriting or rating unless the insurer can establish that the underwriting or rating guidelines are not unfairly discriminatory. Even if statistical data supports an underwriting or rating guideline, there must still be a valid rationale or explanation supporting the differential treatment of similarly situated applicants.