By: Divya Prasad
After receiving complaints from customers frustrated with long response times, the insurance industry has finally welcomed new technology to increase its efficiency. Considering that regulators have yet to catch up with tech companies as they race to innovate in the insurance space, this blog post examines the underregulated space of insurance technology (“insurtech”).[1] It shares two exciting examples of insurtech, identifies a significant challenge that lawmakers face when drafting legislation surrounding the use of these technologies, and highlights one state’s solution that could be mirrored across the country.[2]
Blockchain and Artificial Intelligence (“AI”) are ripe with the potential to knock any seemingly stale industry into the 21st century. While its pervasiveness is certainly evident in the cryptocurrency market, blockchain-centered applications have also grown increasingly popular in the consumer data management space.[3] Considering that its data is cryptographically secured and can be electronically distributed across a private network, blockchain’s use in consumer markets presents insurers with opportunities to increase transparency throughout the entire insurance process without sacrificing security when managing large amounts of personal information.[4] The advantages of the technology are especially evident during the claim processing stage when an insurer can elect to use a blockchain-based platform, such as “Medical Chain,” to securely view a patient’s medical history and receive information from healthcare providers within a private network.[5]
Similarly, an insurer might improve the claim process by introducing AI-based insurtech into the mix.[6] For instance, many large insurers, such as Geico and Allstate, use AI-powered assistants to answer customers’ questions, “check billing information, and address common inquiries” around the clock.[7] AI-based technology further increases efficiency by analyzing large amounts of data at a speed beyond human capability.[8] The National Association for Insurance Commissioners’ Center for Insurance Policy and Research suggests that machine learning, a subset of AI, can even “help [insurers] quickly assess the severity of damages and predict the repair costs from historical data, sensors, and images.”[9]
Before diving into any potential legal issues that insurers may face when incorporating insurtech into their business, it is important to note that the insurance industry is generally governed by state law.[10] One of many conceivable challenges with regulating the use of new technology in this space is that insurers generally operate across many states, and a patchwork regulatory model may cause confusion as to which procedures should be followed.[11] For example, several states have their own licensing procedures that require an insurance producer (i.e. an insurance agent) to first obtain a license before they can “sell, solicit, or negotiate” insurance, such as through the provision of policy rate quotes and explanations regarding coverage.[12] Comparably, many states do not require a producer to obtain a license so long as the producer’s “activities are limited to advertising without the intent to solicit insurance.”[13] Additionally, many lawmakers believe that insurtech firms, such as those that developed the AI-powered assistants that were discussed earlier in this post, “should be subject to the same facts-and-circumstances analysis as non-tech actors with respect to whether a given activity triggers producer licensing requirements.”[14] At this point in time, it is unclear whether any states have held companies accountable for failing to obtain insurance producers licenses when they use AI to engage with consumers.
An insurtech regulatory
sandbox, such as the one pioneered by Kentucky in 2019, might prove useful in
addressing the aforementioned challenge.[15] This solution would allow technology companies
to further refine their insurtech without compromising their efficiency or
forcing them to comply with confusing regulations.[16] While companies tinker with their tech,
lawmakers can learn more about the various types of insurtech before attempting
to regulate them.[17] Unlike Kentucky, many states suggest that
their existing regulatory frameworks likely already “contain sufficient flexibility”
for insurtech companies to experiment with new technology without formal
sandboxes.[18] Instead, these tech companies would rely only
on “regulatory variances or waivers” from their state governments without a
formal structure to push through innovation in the space.[19] Similarly, many insurance market participants believe
that any plans to help tech companies evade particular regulations, especially
those that were enacted “to protect the insurance-buying public,” would be
counterproductive “to a regulator’s primary duty to safeguard the insurance
marketplace.”[20] These clear disagreements among lawmakers as
to how they should regulate insurtech should provide for an interesting discussion
going forward, especially as the world searches for tools to improve efficiency
and transparency on a broader scale during the current pandemic.
[1] See Marshall Hargrave, Insurtech, Investopedia (Aug. 20, 2019), https://www.investopedia.com/terms/i/insurtech.asp (defining insurtech as “the use of technology innovations designed to squeeze out savings and efficiency from the current insurance industry model”).
[2] Id.
[3] See Naveen Joshi, How Blockchain And AI Can Help Master Data Management, Forbes (June 12, 2019), https://www.forbes.com/sites/cognitiveworld/2019/06/12/how-blockchain-and-ai-can-help-master-data-management/#2d2b2ffe2a8a.
[4] See The Difference Between Blockchain & Distributed Ledger Technology, Tradeix, https://tradeix.com/distributed-ledger-technology/ (last visited Mar. 8, 2020) (clarifying that “blockchain is . . . one type of distributed ledger”); Inmediate.io, Blockchain: Helping Insurance In Security And Transparency Towards An Improved Customer Satisfaction, Medium (Mar. 18, 2019), https://medium.com/@inmediatesg/blockchain-helping-insurance-in-security-and-transparency-towards-an-improved-customer-77441dee2218.
[5] See Medicalchain, https://medicalchain.com/en/whitepaper/ (last visited Mar. 8, 2020).
[6] See Artificial Intelligence, NAIC, https://content.naic.org/cipr_topics/topic_artificial_intelligence.htm (last updated Dec. 23, 2019).
[7] Id. (highlighting a startup company’s assertion that “its chatbot . . . settled a claim within 3 seconds”)
[8] Id. (“As AI is able to execute complex analyses and computations at a speed impossible for humans, it generates faster insights.”).
[9] Id.
[10] Sam Lewis, Insurtech: An Industry Ripe for Disruption, 1 Geo. L. Tech. Rev. 491, 498 (2017)(“In the United States, the federal government plays only a small role in the insurance regulatory system.”).
[11] See The Role Of Regulatory Sandboxes In Fintech Innovation, Finextra (Sept. 10, 2018), https://www.finextra.com/blogposting/15759/the-role-of-regulatory-sandboxes-in-fintech-innovation (“When an industry rapidly evolves, including the businesses and technologies within it, it can be unclear if any regulation should be applied, and if so, to what extent.”)
[12] Jason Hsieh, INTERVIEW: How insurance tech challenges regulation to keep pace in U.S., Reuters (Aug. 28, 2019), https://www.reuters.com/article/bc-finreg-insurance-tech/interview-how-insurance-tech-challenges-regulation-to-keep-pace-in-u-s-idUSKCN1VH24N.
[13] Id.
[14] Id.; see generally Producer Licensing (D) Task Force, NAIC, https://content.naic.org/cmte_d_pltf.htm (last visited Mar. 23, 2020) (sharing that the National Association of Insurance Commissioners’ Pro Producer Licensing (D) Task Force intends to “finalize the white paper on the role of chatbots and artificial intelligence (AI) in the distribution of insurance and the regulatory supervision of these technologies by the 2020 Spring National Meeting”).
[15] See Susan West, Kentucky Creates Insurance Innovation “Sandbox”, Kentucky.gov (Aug. 20, 2019), https://kentucky.gov/Pages/Activity-stream.aspx?n=PPC&prId=70 (sharing that Kentucky’s sandbox “allows insurers and others to beta test their innovations in a structured and supervised environment”).
[16] Cf. The Role Of Regulatory Sandboxes In Fintech Innovation, supra note 11 (identifying the numerous benefits of a regulatory sandbox encountered by lawmakers and companies during the development of a similar area of technology).
[17] Id. (highlighting that a regulatory sandbox benefits both regulators and tech companies when it provides companies with the opportunity to “test their products in a live market” and grants regulators with “greater visibility into new innovations” thus enabling them to draft comprehensive legislation).
[18] See Hsieh, supra note 12.
[19] Id.
[20] Id.
