Colorado Law Limits Use of Data in Setting Insurance Rates


Michael DeLong, CFA’s insurance advocate, said in a statement: “The bill creates a process to ensure that insurance markets are more fair. With its enactment, Colorado has the opportunity to be a leader in the national effort to reduce systemic bias in insurance and other financial services. (Credit: welcomia / Shutterstock)

Colorado’s new law, which the governor and state insurance commissioner signed, will require insurance companies to demonstrate that their use of external data and complicated algorithms does not discriminate on the basis of certain classes and will help ensure that citizens do not pay too much for coverage. or become unfairly targeted by insurance companies because of who they inherently are.

The law aims to obstruct practices that disproportionately harm communities of color or individuals on the basis of sex, sexual orientation or gender identity,

The law, SB 169, identifies the classes that “must be protected against discrimination in the methodologies of marketing, underwriting, pricing, management of usage and reimbursement, and management of claims in the insurance transaction”. The law directs the Insurance Commissioner to gather feedback from businesses and consumers and adopt rules to ensure that the use of data and models by insurers does not lead to harmful discrimination. The rules should also allow companies to mitigate biases found in their algorithms.

It is industry practice for auto insurers to use non-driving characteristics such as credit history, gender, education, and marital status to calculate premiums. The use of these features has had a disproportionate impact on people of color and other protected classes. These practices also perpetuate systematic biases.

While this bill does not prohibit the use of credit history in setting insurance premiums, it does prevent insurers from using external data, information, algorithms or predictive models on consumers that are harmful in any way. disproportionate to members of any protected category. In order to use factors such as credit history in the future, insurers will need to ensure that these factors do not disproportionately harm people of color and take steps to mitigate unfair practices.

A study of the Consumers Federation of America (CFA) using premium quotes for a 35-year-old man with a perfect driving record from ten of Colorado’s largest insurers for every state zip code found that with excellent credit scores, a driver can expect to pay an average annual premium of $ 592.11. In comparison, a driver with fair credit can expect to pay an average annual premium of $ 785.67, and a driver with bad credit may see the average premium increase by 72% to $ 1,019 for the same. cover, even with a perfect backrest.

“This bill holds insurers accountable for the systemic biases embedded in business practices by requiring them to test their data systems, algorithms and models to identify injustices historically ignored and accepted,” said Michael DeLong, insurance advocate for CFA, in a press release. “The bill creates a process to ensure that insurance markets are more equitable. With its enactment, Colorado has the opportunity to be a leader in the national effort to reduce systemic bias in insurance and other financial services. “

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