How Insurtech And Pandemic Impacted Regulations – Insurance

Andreas Milano

Editor’s note: This has been excerpted with permission from Mayer Brown’s “Global Insurance Industry 2020 Year in Review.” Find the entire report here. Despite the insurance industry’s continued investment in insurtech in 2020, the COVID-19 pandemic posed particular challenges for state insurance regulators. Consumer dissatisfaction, whether expressed or simply feared, caused […]

Editor’s note: This has been excerpted
with permission from Mayer Brown’s “Global Insurance
Industry 2020 Year in Review.” Find the entire report here.

Despite the insurance industry’s continued investment in
insurtech in 2020, the COVID-19 pandemic posed particular
challenges for state insurance regulators. Consumer
dissatisfaction, whether expressed or simply feared, caused
regulators to issue varying degrees of guidance and mandates.
Regulators that historically would have balked at mid-term premium
rebates encouraged, and even ordered, return of premium on
insurance products whose risk profile changed dramatically due to
the pandemic. Regulators embraced technology and demonstrated a
willingness to reconsider long standing positions when faced with
pressing need, including mandating forbearances related to
cancellation for nonpayment of premium, easing the rules around
telemedicine and easing the burden of paper filings with the
state.

At the state and NAIC level, regulators further embraced
collaboration with the industry. For example, New York’s
Department of Financial Services launched DFS FastForward in June
2020, expanding on its existing insurtech support program (Project
Whitehall) to support innovators seeking to deliver new solutions
in financial services, fintech, insurtech and healthtech during
COVID-19. Vermont launched a regulatory sandbox in January 2020,
under which companies can seek waivers of certain
statutory/regulatory requirements for a limited period while
piloting a program or product in Vermont.

At the NAIC level, on August 14, 2020, the NAIC Executive
Committee/Plenary unanimously adopted guiding principles on
artificial intelligence (“AI”). The NAIC’s Principles
on Artificial Intelligence were developed by the NAIC’s AI
Working Group, a working group established by the NAIC’s
Technology and Innovation Task Force. The AI Working Group studied
the use of AI in the insurance sector, its impact on consumer
protection and privacy, its interplay within the state-based
regulatory framework, as well as solicited comments from key
industry stakeholders.

The Principles on Artificial Intelligence, which are general
guidelines on regulatory expectations with respect to the use of AI
in the insurance industry, are based, in part, on the Organisation
for Economic Co-operation and Development’s (“OECD”)
AI principles, adopted by 42 countries, including the US. The
principles outline five key tenets, summarized by the acronym
FACTS:

  • Fair and Ethical. Respecting the rule of law
    and implementing trustworthy solutions. Encourages industry
    participants to take proactive steps to avoid proxy discrimination
    against protected classes when using AI platforms.

  • Accountable. Responsibility for the creation,
    implementation and impacts of any AI system.

  • Compliant. Have knowledge and resources in
    place to comply with all applicable insurance laws and
    regulations.

  • Transparent. Commitment to responsible
    disclosures regarding AI systems to relevant stakeholders as well
    as ability to inquire about and review AI driven insurance
    decisions.

  • Secure/Safe/Robust. Ensure reasonable level of
    traceability of datasets, processes and decisions made and
    implementation of a systematic risk management process to detect
    and correct risks associated with privacy, digital security and
    unfair discrimination.

In addition, on December 9, 2020, the NAIC Executive
Committee/Plenary adopted amendments to anti-rebating provisions of
NAIC Unfair Trade Practices Model Act (“UTPA”). The
amendments were designed by the Innovation and Technology Task
Force after careful consideration of industry claims that the
anti-rebating provisions were outdated and hindering insurers and
producers ability to use technology to improve outcomes for
insureds.

The amendments to the UTPA allow insurers and producers to,
among other things provide, without charge or at a reduced cost, on
a non-discriminatory basis, nine categories of “value
added” services, provided the “value added” product
or service relates to the insurance cover age, and the cost to the
carrier or producer of providing the value added service/product is
reasonable in relation to the policy premium. These value added
services include those that are primarily designed to satisfy one
or more of the following:

  1. Provide loss mitigation or loss control;

  2. Reduce claim costs or claim settlement costs;

  3. Provide education about liability risks or risk of loss to
    persons or property;

  4. Monitor or assess risk, identify sources of risk, or develop
    strategies for eliminating or reducing risk;

  5. Enhance health;

  6. Enhance financial wellness through items such as education or
    financial planning services;

  7. Provide post-loss services;

  8. Incent behavioral changes to improve the health or reduce the
    risk of death or disability of a customer (defined for purposes of
    this subsection as policyholder, potential policyholder,
    certificate holder, potential certificate holder, insured,
    potentialinsured or applicant); or

  9. Assist in the administration of the employee or retiree benefit
    insurance coverage.

In addition, the amendments to the UTPA, allow insurers and
producers to offer or give non-cash gifts, items, or services,
including meals to or charitable donations on behalf of a customer,
up to a stipulated cash value (for personal lines) or up to an
amount that is reasonable in relation to the policy premium (for
commercial lines).

Despite the various challenges for the insurance industry in
2020, developments in insurtech helped to pave a path for better
customer experience and operational efficiency in the insurance
industry. The insurance industry proved to be resilient and
flexible during the pandemic, in no small part to the contribution
of technology and innovation to drive business processes forward
and meet the needs of policyholders. Although it is to be seen
whether the high valuations attributed to several high growth
insurtechs are justified, it seems clear that the digital
transformation will continue to accelerate through the insurance
industry and impact the way insurance business is conducted and
regulated.

Originally Published by Digital Insurance.

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