While insurers and insurtechs partner on new digital solutions for addressing issues within the industry, insurance regulators are trying to reach a consensus on guidelines for the use of AI technology, according to panelists in a conversation on “The Impact of Regulation and Policy on Digital Innovation” at DIG-IN New Orleans on June 10, 2022.
“Eventually, the technology is going to get to the point where people will start to think about how they aggregate risk,” said Scott Harrison, president and CEO of the American Insurtech Council, an industry advocacy group, and the panel’s moderator. “It’s not just selling the product faster. It’s completely rethinking categories of products and categories of risk, and maybe even rethinking how that risk is aggregated in finance.”
The first step in rethinking risk in keeping with new technology for insurance is to evaluate how technology has replaced manual processes and improved efficiency, according to Kathleen Birrane, insurance commissioner for the state of Maryland, who is chair of the Innovation, Cybersecurity and Technology committee (commonly known as the “H” Committee) of the National Association of Insurance Commissioners, an alliance of US state regulators that collects data, expertise and analysis to inform regulatory policies.
“What’s intriguing is how do we use technology effectively to right-size risk without limiting the concept of insurance?” Birrane said. By putting together innovation, cybersecurity and technology in one group, NAIC wants members to collaborate and reach consensus on principles for the use of AI, for example, she added.
Tesla’s telematics base for its own insurance product is a good example of how technological advances fuel discussion of regulatory issues, according to Troy Downing, commissioner of securities and insurance for the state of Montana.
“Tesla’s insurance program can dynamically change based on how you drove yesterday. Companies that are starting to say if they put this device in, you might be able to get cheaper insurance based on your driving experience. This is voluntary and a lot of people opt out because of privacy concerns. They don’t want anyone to know where they’re driving or how they’re driving,” he says. “But at some point because they’re so good at predicting results by knowing behavior, the delta in pricing is going to compel pretty much everybody to eventually jump into that. I’m not really clear what our role is as regulators in that. I think that that’s a natural process that’s going to happen in that industry.”
Data privacy is not the only concern caused by technological advances, and regulators think about which concerns could come up depending on what an insurtech’s product or service does. These can include consumer fairness or protection, and those seeking regulatory approval to operate should have already thought about how to address those issues, stated Birrane.
“You have ideas. You’re looking to implement them in my market. Come talk to me and let me understand what it is that you’re doing, and what it’s going to do in my market,” she said. “I don’t want to hear your investor speech because that’s not what my primary concern is. What I want to understand is what the product’s going to do, how does it work, and how might it impact consumers.”
As an example of this process, Birrane pointed to an app for supplemental health benefit applications that could provide what doctors charge for a procedure based on CPT codes, so the user could compare prices. While this may be a useful innovation, a regulator has to think about the service could be accessible to all of the public in a fair manner, not just those who are tech-savvy and used to smartphone apps, she emphasized.
“We mapped out all the ways in which you can wrap customer services and call centers around this to make it work for everybody,” Birrane said. This underlines how important it is for innovators or the business side of their companies to work with their regulatory compliance departments, so that an innovative technology won’t run afoul of regulations in a way they may not have anticipated or thought about, she explained.
The NAIC’s H Committee has working groups specializing in AI and big data, cybersecurity, e-commerce, innovation in technology and regulation, and privacy protections. Some of the working groups are older than others. The committee is focused on three areas: AI and machine learning, cybersecurity and data privacy.
Birrane acknowledged that regulators “will never be ahead of industry” in their understanding of technology, but as Downing said, regulators’ main concern is making sure new technologies are not discriminatory because of the algorithms, AI or machine learning they use.