United States: NY Regulatory Guidance On AI Illustrates Compliance Challenges

The New York Department of Financial Services' (DFS) January 2019  insurance circular letter, which advised New York-licensed life insurance carriers on the use of external consumer data and information sources in underwriting, illustrates the emerging regulatory landscape surrounding these tools. While DFS stated its support for the use of external data sources to improve the provision of insurance through better pricing, it expressed concern that the accuracy and reliability of lifestyle indicators could vary and therefore negatively impact consumers and the insurance sector generally.

This article is part of a series examining regulator guidance and developing common law around the use of AI. This article addresses DFS's increased focus on issues concerning technology and cybersecurity.

"Unconventional sources" prompted regulatory intervention

DFS investigated the use by life insurers of external data. DFS explained that "external data" for the purposes of the circular letter includes any information that is not directly related to the medical condition of the applicant that is used to supplement medical underwriting or to establish "lifestyle indicators" that may contribute to an underwriting assessment.

DFS identified two areas of concern with the use of external data sources that it identified during its investigation:

  1. Discrimination: The use of external AI data could potentially impact the availability and affordability of life insurance for protected classes of consumers. DFS reminded insurers that they cannot base their pricing on race, color, creed, national origin, status as a victim of domestic violence, past lawful travel, sexual orientation and other prohibited grounds of discrimination. Applicable insurance law also prohibits insurers from refusing to insure persons with a physical or mental disability, impairment or disease, or history of same, except where permitted by law and based on sound actuarial principles, or where based on actual or reasonably anticipated experiences. DFS also cited federal civil rights laws as bearing on insurers' antidiscrimination obligations.

    DFS expressed concern that external data sources could potentially collect data or use information that the insurer would otherwise be prohibited from using. In this regard, DFS explained that the use of external sources has the "strong potential to mask" discrimination. In particular, DFS noted that external sources that use "geographical data (including community-level mortality, addiction, or smoking data), homeownership data, credit information, educational attainment, licensures, civil judgments and court records" could also serve to mask illicit race-based underwriting. Additionally, DFS noted potentially problematic models that make health predictions based on (1) a consumer's retail purchase history, (2) social media, internet or mobile activity, (3) geographic location tracking, (4) the condition or type of an applicant's electronic devices (and any systems or applications operating on them) or (5) how the consumer appears in a photograph. DFS explained that these models and inputs may lack sufficient rationale or actuarial basis and might additionally impact protected classes of consumers.

    Based on these concerns, DFS issued the following guidelines:

    a. An insurer should not use external data and predictive models unless the insurer has determined that the tools do not collect or utilize prohibited criteria. Reliance on a vendor's claim of nondiscrimination or the proprietary nature of a third-party process is not enough, as the burden remains with the insurer to observe the law.

    b. An insurer 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 in violation of the N.Y. Insurance Law. Specifically, the insurer should consider whether the underwriting guidelines derived from the external data are supported by generally accepted actuarial principles or actual or reasonably anticipated experiences that justify different results for similarly situated applicants. Statistical data alone is not sufficient, as there must still be a valid rationale or explanation supporting the differential treatment.

    DFS noted that, subject to the principles described above, an insurer may establish guidelines and practices to assess an applicant's health status and identify individuals at higher mortality risk if based on sound actuarial principles or if related to actual or reasonably anticipated experience.

  2. Lack of transparency: DFS found that life insurers relying on external data for underwriting purposes should be transparent with consumers. DFS noted that, pursuant to the N.Y. Insurance Law, an insurer must notify an applicant of the right to receive the reason for "any declination, limitation, rate differential or other adverse underwriting decision." DFS explains in the Circular Letter that an "adverse underwriting decision" includes the "inability of an applicant to utilize an expedited, accelerated or algorithmic underwriting process in lieu of a traditional medical underwriting." Where an insurer is using external data sources, the reason or reasons provided to an applicant must include in detail all information upon which the insurer based any adverse underwriting decision, including the specific source of the information upon which the insurer based its decision. Here, too, the insurer may not rely on the proprietary nature of a third party's process or analytical tool to justify the lack of specificity related to the adverse underwriting action. Additionally, the insurer must obtain consumer consent before accessing external data, if required by law or regulation.

    The failure to adequately disclose to a consumer the material elements of an accelerated or algorithmic underwriting process, and the external data sources upon which that process relies, may constitute an "unfair trade practice" under Article 24 of the N.Y. Insurance Law, which could subject the insurer to administrative and judicial penalties.

DFS specified the circular letter should not be interpreted as an exhaustive list of issues that could arise with the use of external data, whether for life or other kinds of insurance.

Algorithms and predictive models might be focus of exams

DFS cautioned that it reserves the right to audit underwriting criteria, algorithms and models, including as part of routine examinations. Noncompliance might lead to disciplinary action, including fines, revocation and suspension of license and the withdrawal of product forms.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions