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  

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