According to an article by Mayer Brown, on July 11, 2024, the New York State Department of Financial Services (NYDFS) issued a circular letter addressing the use of external consumer data and artificial intelligence systems in insurance underwriting and pricing. The AI Circular Letter outlines expectations for the development and use of these systems, emphasizing the need to analyze for unfair and unlawful discrimination, demonstrate actuarial validity, maintain a governance framework, and ensure transparency and risk management.

The guidance applies to all insurers authorized to write insurance in New York, including health maintenance organizations and fraternal benefit societies. Key changes from the proposed draft include requirements for evaluating proxy discrimination, using available data for testing, and conducting ongoing searches for less discriminatory alternatives. Insurers must document their use of AI systems and ensure that third-party vendor contracts meet specified criteria.

The NYDFS has set out fairness principles prohibiting the use of data that could lead to discrimination and requiring comprehensive assessments to prevent unlawful practices. Insurers are required to conduct these assessments before deploying AI systems and regularly thereafter. The governance framework must include oversight by the board of directors and senior management, with policies reviewed and approved annually.

The AI Circular Letter aims to ensure that AI and predictive models used in insurance are fair, transparent, and non-discriminatory, with rigorous documentation and oversight to maintain compliance with New York Insurance Law.