California Insurance Commissioner Ricardo Lara issued a bulletin reminding insurance companies that bias and discriminatory use of consumers’ data are prohibited. Lara said he is committed to using all tools to prevent unfair practices targeting Californians, many of whom are low-income and from communities of color, and to ensure consumer protections are upheld under California’s Unruh Civil Rights Act and other Insurance Code laws.
The bulletin specifically reminds insurance companies and other department licensees of their obligation to conduct business, charge premiums, investigate fraud and pay claims in a way that avoids bias and discrimination.
Lara said this has become even more of a concern as insurance companies embrace artificial intelligence and ‘Big Data,’ which rely on machine learning and other tools prone to human bias when identifying trends of groups based on certain characteristics. He said this technology has opened the door to an increase in unfair discrimination targeting certain groups of individuals based on characteristics not related to the risk they present.
The California Department of Insurance is investigating several recent examples of potential bias and alleged unfair discrimination in many lines of insurance resulting from the use of technology and data, including:
- Allegations that insurers are unfairly flagging claims from certain inner-city ZIP Codes and referring these claims to their Special Investigative Unit, resulting in many of the claimants being denied coverage or receiving low-ball offers to settle, which may result in a disproportionate number of unfair claims delays and denials to claimants from socioeconomically disadvantaged communities.
- Allegations that insurers are using biometric data obtained through facial recognition technology, which a growing body of research has shown to result in discrimination across demographic groups, to influence whether to pay or deny claims.
- Allegations that insurers, licensees, and insurance marketing institutions are collecting biometric and other personal information unrelated to risk in the marketing and underwriting of insurance policies. The use of these technologies and reliance on algorithms to decide whether to market and underwrite insurance products for a particular population creates a risk that eligibility could be denied based on race, gender, disability, or other protected classes.
To ensure that all Californians are treated equally,Lara’s bulletin directs all persons engaged in the business of insurance in California to review all applicable laws and train their staffs on the proper application of and full compliance with all laws applicable to insurance. California law prohibits discrimination in insurance ratemaking, claims handling practices, accepting insurance applications, and when canceling or nonrenewing insurance policies. Additionally, insurers and licensees must provide transparency to Californians by informing consumers of the specific reasons for any adverse underwriting decisions.
The department said it reserves the right to audit and examine all insurer business practices including an insurer’s marketing, rating, claim, and underwriting criteria, programs, algorithms and models. If an investigation reveals an insurer or other person engaged in the business of insurance is not in compliance with all state and federal laws, the department said it will use its authority to take disciplinary action.
In addition to the bulletin, Lara said he will announce a regulatory workshop this summer to investigate bias and discrimination in California’s insurance market. The workshop will investigate recent allegations, open a new chapter of exploration for potential regulatory solutions, and hold an open discussion with all stakeholders.