Compliance & Emerging Technology in Insurance
we're going to be talking about emerging technologies and kind of compliance and
regulation areas that are attached to that within the insurance industry.
But before we get going with the questions that I've got for you,
can you give everybody an introduction? Yeah, thank you Ema, nice to see you. So
Brian Casey is my name, I am a partner at the Locke Lord law firm based in Atlanta
and co-head our corporate and regulatory insurance practice. Great, thank you for joining me. So to
get us started, I teased the idea of it, but how are you seeing emerging technologies,
whether it be blockchain or AI or maybe even simple things like text messages and just the way
the world is changing, how are you seeing those being used within the insurance industry today?
Yeah, broad topic but important nonetheless. Um let's start a little more general so before we
get to more modern things like blockchain and AI. So I'm dating myself here but you know I I
was probably in my early 30s you know when the e-signature law and e-records laws came in. So
surprisingly you know 20 years but we still have clients that are just beginning
to use e-signatures and some of that was spurred I suppose in part because of the recent pandemic.
But over a 20-year period and you know I can't really say quantitatively whether
80 percent of the companies are doing this and 20 percent aren't, but we still get projects
to this day for clients that are just now doing their first e-signature process which
is a little shocking in some respects. Um so that's kind of my origins in terms of
in the dot.com era in terms of e-commerce and then bringing that forward here. So when you move into
the digital era uh e-signatures of course are an important part of that business process, but many
clients and because their customers want to do business with the company digitally
and in some cases simply through the phone. And that's a big change in business process and
legal and compliance angst for a lot of companies that are used to doing things
in a more old-fashioned way. So as our clients get that demand from their customers,
we have to adapt and help give them advice so they can adapt to do business in that that manner. So
for example you know some of our auto insurance clients um have customers that don't have tablets,
don't have uh computers of any kind and just live on this on the cell phone and that's how they want
to do business. So we have to help them figure out, okay how can we do the solicitation, engage
with the customer, accept the policy application, deliver the policy, send them premium notices,
send them notices of cancellation or non-renewal in case of property and casualty products and
how can we do that all through a phone. And without going into too much in in the weeds here,
um that certainly invokes the the e-sig and e-delivery laws and in some of those cases, so
let me give you a specific example. A couple weeks ago we were looking at this example trying to
deliver a policy through a phone. So you know we the client would send him a text message,
get the application all that, send them a text message, here's your policy, click this link.
And the first question is you know what happens if the customer doesn't click the link? Well
you know we would build we would build in a consent form that says, you agree customer
when we've delivered the link, we've delivered the policy even though you haven't accessed it. Just
in the old-fashioned day to compare it, we sent it in the mail, it went in the mailbox and he
didn't open it right. So you tried to draw those analogies with the the former paper process world.
And the question then was in this specific issue was, for purposes of sending notices that are
required insurance code send it to the customer's last known address? Well the question then became,
is the phone number and the place where we sent the text message,
an address for insurance, law and regulatory purposes? And if you go look at the e-sig laws
which also include e-delivery, it basically says an electronic address is any electronic address
that the parties agree to that here the insurance company and the policyholder. So I think you can
thread that needle that way but then there's the practical side of it. Okay what's the insurance
department's view going to be of that when they come to examine the insurance company, say we want
to see your notices of cancellation on renewal for the last two years and we say okay here's some
some documents that show we sent it to a text. So there's that practical accept regulator acceptance
and acknowledgement dimension that requires in many cases conversations with regulators to
get the comfort you need. So kind of going off of that idea of regulator regulatory concerns,
trying to put my words together there. What other areas so you gave us a really great
example there with is a phone number and address, but what other types of concerns have you seen
tied to emerging technologies and compliance within just financial services in general?
Yeah, maybe let me address that in the context of AI and we can go a little more deeper on AI.
Um so you know artificial intelligence using uh so-called alternative data or non-standard data
whatever that may mean, the data that that hasn't been conventionally used for the last 50 years
or so. There are concerns uh by regulators of the lack of transparency, what's behind the black box,
what are these algorithms doing and not doing, and what's the effect of them on on customers
or potential customers. So transparency and explainability to either the regulator and
or the customer of what these algorithms do. And privacy of course is is a concern in many areas
including AI. Fairness, just general fairness, if I don't want to engage with a company that
way if I'm a consumer and somebody else that's of equal risk to me, am I getting treated in an
unfair manner that's prohibited by law. And part of that unfair uh issue is unfair discrimination.
So insurance companies are prohibited from making rates that are unfairly discriminatory and
can't make rates based on protected classes, race and gender and things like that.
So there are concerns with the regulators on you know, do the results of these algorithms that
are being used for AI processes have the effect, not the intent, but nonetheless have the effect
of producing prohibited discriminatory results for underwriting and rating purposes? And we we call
that proxy discrimination is one term people use, where there's a there's a factor that's
being used in the algorithm and it's not based on race, it's not based on any prohibited class.
Uh let's take education occupation for example, now those those factors are prohibited in some
states about 10 but not in others. So you know is there a proxy as a result of the AI? If I say well
I have I have a undergraduate degree and I have a law degree and I have a master's in tax law,
you know does that is there is the factor those three factors are they correlating to an inference
that I'm a white male, age 50 that lives in a you know certain part of Atlanta for example.
So that that's a big issue. Now the reality is that, we're the we're in the infancy of
AI regulation if you will. Now there are some state insurance departments that have issued
data requests or enforcement notices of their position, that if you're using quote alternative
data that you have to monitor and be able to prove that there are no discriminative
prohibited discriminatory effects on the use of AI? Now proving a negative that's nothing
something that lawyers never want to hear right, because I can't do that.
The reality is that not only the the insurance companies are hiring lots of AI employees,
but the insurance departments and other regulators and financial services area, they have to get
the internal resources and knowledge to begin to regulate however the regulation may end up being?
So so the government frankly is a little behind the eight ball in terms of getting and retaining
qualified people to help them help themselves to understand what's going on with AI here.
This idea of the bias behind AI is so interesting and it's not just within the insurance industry
that this is coming into play. I was at a conference a couple of weeks ago where they
were talking about specifically data science and algorithms that are driving some of these
underwriting decisions. And certain insurers are kind of taking it upon themselves to
ask the question from some of that like inherent bias like just because we can,
should we be building models on these things and kind of asking some of those ethical questions on
their own behalf. But there is going to have to be some guiding principles as we move forward to
see these technologies becoming more and more part of our decision making and kind of how do
we balance these decisions and make these choices um and how that the technology dictates our lives.
So as my last question I suppose kind of ties into this, as you know insurers or other organizations
are looking at bringing emerging tools into their organization, what kind of advice do you have for
them to make sure that they're still staying in compliance and still meeting regulatory
rules that are put in place and how should they think through that that process on their side?
Yeah, great great question. Excuse me. Um I think you got to recognize that it's a
little bit of a moving target here as as the regulations evolve in this area. But
I think you got to understand specifically what is the question, compliance issue and where are the
winds blowing and you know where the regulations might or might not go understand those directional
cues. And then you've got to analyze okay, am I you know plain plain letter reading of the law,
am I complying here? You know maybe I'll give you an example here too, when you um I just
had this come up yesterday. So uh an Insurtech client and they have built the quote platform,
which is not a word I like to hear these days because it doesn't mean much to me. And okay
we built the technology, it's great technology, they're licensing it to an insurance company,
the Insuretech is also in the middle of the insurance transaction. In the middle meaning
they've licensed the technology to the insurance company but they're also doing services for the
insurance company. Now they're not selling the policy, their brand is not out there,
but they're making it all happen behind the scenes. So the ques and they they told me, well
we're binding insurance. What do you mean you're binding insurance? Well
our platform is binding insurance. I'm like okay the platform is not a legal entity,
you may think of it that way and I know it's your baby because you created it, but there's only
three answers on the binding question. Either the insurane company that's licensing your technology
is doing that or you're doing it or the retail agent, somebody else a third party is doing it.
And they didn't quite understand that it was really their customer, the insurance company
at least in my view, that was the licensee, the technology that is from a regulatory
perspective is the party that was effectuating the binding of insurance coverage. Yes it was
done through the platform, yes our client was the developer and the licensor of the platform,
but it wasn't really the party that was was making the pulling the trigger on the binding
decision. So you've got to kind of get into the weeds and understand the relationships first
and then peel the onion and say, okay who's doing this specific act or action that requires
regulatory compliance. And it may be vague to begin with but once you sort all that out
on who's doing it, then you can figure out whether they're doing it in compliance.
Oh all the challenges we have ahead of us to figure out. It's kind of fun stuff. Well thank you
so much for sitting down to kind of talk through some of these ideas with me. For anybody that
isn't make sure you go follow Brian on Linkedin or you'll be hopefully able to catch them at a
conference like I did and we got connected that way. But thank you again for your time and thank
you for joining us everybody and have a wonderful day. Bye-bye. If you're looking for expert tips
on how to get started with your transformation or looking to hone in on your approach, make
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