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Great Opportunities in the Face of Impending Regulations

By Lauren N. Ybarra

The explosion of data and the computing power to collect, sort, and analyze such data, commonly referred to as “Big Data,” is revolutionizing our society. For insurers, the use of Big Data has the potential to provide great benefits in supplementing traditional underwriting. For consumers, it has the potential to simplify and accelerate the application process as well as result in more accurate underwriting and pricing.

To kick off the New Year, the New York Department of Financial Services (“DFS”) published Insurance Circular Letter No. 1 (2019) warning life insurers about using external consumer data and information sources in underwriting life insurance. The DFS stressed data, algorithms, or predictive models should not be used unless the insurer can show evidence that the data is not unlawfully discriminatory or otherwise in violation of New York and federal laws. This guidance was published as a result of an investigation of insurers’ practices and underwriting guidelines related to the use of Big Data in underwriting life insurance.


This circular letter warns insurers which utilize data from external sources that they are responsible for its accuracy, completeness, and compliance with the law. Under the Fair Credit Reporting Act (“FCRA”), consumer-reporting agencies must provide notice to applicants and an opportunity to review the data when an adverse decision was made. Will this be the future way to regulate data vendors? It is apparent current insurance statutes did not contemplate the reality of data changes and use.

The letter also stresses insurers “must also disclose to consumers the content and source of any external data upon which the insurer has based an adverse underwriting decision.” The “[t]ransparency is an important consideration in the use of external data sources to underwrite life insurance.” As the circular letter indicates, information collected can include retail purchase history, social media activity, even how a person is represented in photos, and other otherwise personal information, potentially leading to unreliable conclusions about an individual. How to determine the accuracy of the data and evaluation will be an issue for regulators and insurance companies alike. Additionally, it will be difficult for insurers and data vendors to negotiate who owns the propriety data collected.

Where most companies strive to be more relatable to the public, how can insurers ethically manage data that provides better rating and underwriting opportunities for the public?

Texas and Future Impact

Considering the recent news worthiness of the collection and use of personal data by Facebook, Google, and other companies, protections for consumers is likely to increase. One thing is certain, the way insurers use data will be influenced by state and federal regulators in the future. New York’s letter provides an early example of how states may seek to regulate this area.

One thing is certain: The way insurers use data with the open availability of information will be influenced by how quickly state and federal regulators can determine how and when Big Data is used. Texas may want to consider new regulations—either through the legislature (which is currently in session and will not convene again until 2021) or the Texas Department of Insurance—to address the use of Big Data in underwriting or risk falling behind the curve.

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