Insurance Commissioner Ricardo Lara takes action to stop bias and discriminatory use of consumer data by insurance companies

News: 2022 Press Release

LOS ANGELES – Today Insurance Commissioner Ricardo Lara issued a Bulletin reminding insurance companies that bias and discriminatory use of consumers’ data have no place in the California insurance marketplace. As a champion for all consumers, Commissioner Lara is committed to use all tools to prevent unfair practices targeting Californians, many of whom are low-income and from communities of color, and to ensure consumer protections are upheld under California’s Unruh Civil Rights Act and several other Insurance Code laws.  

“I have serious concerns that insurance companies’ increasing use of consumers’ data will exacerbate inequities or cause consumers to be charged more, either deliberately or inadvertently,” said Commissioner Lara. “Algorithms and artificial intelligence are susceptible to the same biases and discrimination we have historically seen in insurance. I am committed to fighting to protect Californians by ensuring fair and equal treatment for all, and investigating unfair and discriminatory practices.”

Commissioner Lara’s Bulletin specifically reminds insurance companies and other Department licensees of their obligation to conduct business, charge premiums, investigate fraud, and pay claims in a way that avoids bias and discrimination.

This has become even more of a concern as insurance companies embrace artificial intelligence and ‘Big Data’, which rely on machine learning and other tools prone to human bias when identifying trends of particular groups based on certain characteristics. This technology has opened the door to an increase in unfair discrimination targeting certain groups of individuals based on characteristics not related to the risk they present.

The Department is currently looking into several recent examples of potential bias and alleged unfair discrimination in many lines of insurance resulting from the use of technology and data, including:

• Allegations that insurers are unfairly flagging claims from certain inner-city ZIP Codes and referring these claims to their Special Investigative Unit, resulting in many of the claimants being denied coverage or receiving low-ball offers to settle, which may result in a disproportionate number of unfair claims delays and denials to claimants from socioeconomically-disadvantaged communities.  
• Allegations that insurers are using biometric data obtained through facial recognition technology, which a growing body of research has shown to result in discrimination across demographic groups, to influence whether to pay or deny claims. 
• Allegations that insurers, licensees, and insurance marketing institutions are collecting biometric and other personal information unrelated to risk in the marketing and underwriting of insurance policies. The use of these technologies and reliance on algorithms to decide whether to market and underwrite insurance products for a particular population creates a risk that eligibility could be denied based on race, gender, disability, or other protected classes.

In order to ensure that all Californians are treated equally, Commissioner Lara’s Bulletin directs all persons engaged in the business of insurance in California to review all applicable laws and train their staffs on the proper application of and full compliance with all laws applicable to insurance. California law prohibits discrimination in insurance ratemaking, claims handling practices, accepting insurance applications, and when canceling or nonrenewing insurance policies. Additionally, insurers and licensees must provide transparency to Californians by informing consumers of the specific reasons for any adverse underwriting decisions.

As stated in Commissioner Lara’s Bulletin, the Department reserves the right to audit and examine all insurer business practices including an insurer’s marketing, rating, claim, and underwriting criteria, programs, algorithms, and models. If an investigation reveals an insurer or other person engaged in the business of insurance is not in compliance with all state and federal laws, the Department will use its authority to take disciplinary action.

The Department also encourages anyone who feels they, or someone they know, may have been discriminated against or faced unfair bias with their claim, premium, or interaction with their insurance company to contact the Department’s Consumer Services team at 800-927-4357 or online at www.insurance.ca.gov so we can investigate further.

In addition to today’s Bulletin, Commissioner Lara will announce a regulatory workshop this summer to investigate bias and discrimination in California’s insurance market. The workshop will investigate recent allegations, open a new chapter of exploration for potential regulatory solutions, and hold an open discussion with all stakeholders. 

# # #

Media Notes:

• BULLETIN 2022-5 Allegations of Racial Bias and Unfair Discrimination in Marketing Rating Underwriting and Claims Practices by the Insurance Industry

• The Consumer Federation of America and Center for Economic Justice issued a research paper stating that with insurers’ “rapidly growing use of third-party data and complex algorithms the potential for algorithmic bias and proxy discrimination has grown dramatically.”

• The landmark Unruh Civil Rights Act, signed into law by Governor Pat Brown in 1959, specifically outlaws discrimination in by businesses based on sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status. The California Supreme Court has held that protections under the Unruh Act are not necessarily restricted to these characteristics.

• There is a growing body of research showing the use of AI and algorithms results in discrimination against certain groups. Sources include: The Consumer Financial Protection Bureau (CFPB), Cognitive Science study, the National Institute of Standards and Technology (NIST) and the Racial Discrimination in Face Recognition Technology blog by Harvard.