Californians need protection from insurance industry’s use of artificial intelligence and algorithms, insurance commissioner will say

LOS ANGELES, September 21, 2022 /PRNewswire/ — The insurance industry’s use of algorithms and artificial intelligence to set premiums and determine who can get insurance coverage poses a serious threat to Californians and a violation of California law, Consumer Watchdog will tell the insurance commissioner at a public meeting called today to examine high-tech bias and discrimination by insurance companies.

Read Consumer Watchdog’s comments to the commissioner: https://consumerwatchdog.org/sites/default/files/2022-09/Statement%20of%20Consumer%20Watchdog%20-%20Bias%20Workshop%209-21-22.pdf

Under current consumer protection rules put in place by Proposition 103, insurance rates and premiums are set through a public process that requires insurance companies to use objective, verifiable data to support their projections of prices based on future claims, expenses and profits of the company. But insurance companies are urging the commissioner to abandon this approach in favor of using secret algorithms, models and artificial intelligence, which will lead to discrimination and higher prices. Indeed, as Consumer Watchdog points out, some insurance companies are already engaging in illegal and discriminatory practices in California.

Consumer Watchdog has highlighted four key consumer concerns.

• Many insurance companies use a motorist’s occupation and education to set premiums, which the Department itself found – three years ago – to discriminate against low-income non-white drivers. revenue. Consumer Watchdog has repeatedly objected to this illegal practice and asked the Commissioner to issue rules to end it. However, the Department continues to allow insurance companies to do so.
• Two car insurance companies were found to have overcharged their best California customers based on Big Data studies showing that some motorists will tolerate modest but unjustified premium increases – a practice known as “price optimization”. Reviewing evidence from an investigation currently underway at the Department of Insurance, the Consumer Watchdog expert concluded that Allstate had overcharged some of its California insured by $1 billion through price optimization. Consumer Watchdog said the commissioner should impose massive penalties to punish Allstate and discourage other companies from committing future violations.
• Insurance companies use secret “wildfire risk scores” to determine whether someone is eligible for home insurance and, if so, how much they will have to pay. A new regulation passed by the commissioner will require insurance companies to fully disclose the models and algorithms they use to rank a property’s fire risk and set a person’s premium. But it will allow companies to decline coverage and not renew existing policyholders based on wildfire risk scores.
• Insurance companies and Wall Street “data brokers” are urging the commissioner to reinstate a high-tech version of the redlining and territorial rating systems that California voters rejected decades ago. They want the commissioner to allow them to use privacy-breaking tracking technologies like “geolocation” and other personal data about drivers’ habits to set car insurance premiums (often called “telematics”). “), rather than the pricing factors required by law: mainly their driving safety record, the number of kilometers they drive each year and the number of years of driving experience they have had.

Algorithms, models, artificial intelligence and machine learning transform the insurance pricing process from one that can be analyzed and verified to an arbitrary “smart black box” system in which price legitimacy and underwriting practices can never be confirmed, allowing discrimination and excessive rates.

Consumer Watchdog urged the commissioner to “reject the scintillating hype and easy promises made by insurance companies and big data companies seeking a regulatory windfall at the expense of California consumers. California the law is clear: unfairly discriminatory insurance rates and practices are illegal. What is needed now in California is law application.“

SOURCE Consumer Watchdog