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Data transparency 'key' to end racial disparities in insurance, regulator says

➤ California's state insurance commissioner is working toward regulatory reform after his department found "disturbing inequity" among group affinity discounts that insurers offer in the state.

➤ A focus on the role of big data, artificial intelligence and other advanced technical tools is necessary to make sure discrimination, intentional or unintentional, does not take place, the regulator said.

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In 2018, California Insurance Commissioner Ricardo Lara became the first openly gay person elected to statewide office in California history.
Source: California Department of Insurance

During California Insurance Commissioner Ricardo Lara's time in office, he has had to tackle not only the devastating wildfires that are becoming increasingly deadly in the state but also a global pandemic and a wave of civil unrest that has swept through the nation.

As the National Association of Insurance Commissioners moves toward a more formal approach to rid the industry of potentially discriminatory practices, S&P Global Market Intelligence caught up with Lara, who hopes to share his experiences around what California has done to eradicate inequities and increase diversity throughout the industry.

What has it been like to be making decisions in such an unprecedented time?

No doubt this pandemic has once again challenged those of us that are not only serving as insurance commissioners, but are in these critical roles to ensure we are advocating for and expanding access to healthcare.

Some of the things that we moved in California to do immediately was to eliminate copays for COVID testing, to make sure that we responded with emergency workers' comp regulations that help not only protect workers but bring down the cost of workers' comp for businesses that are currently struggling to open.

Given this reality that we're living in, in terms of after the killing of George Floyd, now the thought lies on the insurance industry of what is the industry going to do to meet this critical moment in our history as we continue to address systematic racism and the fact that we are treated differently here in this country. There's a lot that we're working on, but again I think we are meeting that moment in California with the reality of what so many of us have lived individually, but also using this as an opportunity to make some critical change that we need so that we can inch towards a more equitable society.

Are there discriminatory practices the industry participates in that you're aware of?

We need to do it now more than ever and continue to strive to make sure that products are equitable for everyone, that the data that's being collected and being used to determine new products doesn't discriminate against people of color or low-income consumers. I think the NAIC announcing the special committee on race and insurance ahead of the insurance special session we're going to have in August at the summer meeting is very timely. I think we need to look at artificial intelligence and big data and other 21st-century technology to make sure that these tools do not result in discrimination by proxy, and I think we need to renew our focus to eradicate racially discriminatory practices whether intentionally or unintentionally in insurance products and discuss ways to collaboratively promote diversity and inclusion within the insurance sector.

I want NAIC to not only look at itself internally in terms of how diverse is our staff, our organization, but also within our individual departments across the state, what do we do to more diversify our departments, but also, how do we put some responsibility on the insurance industry to look at themselves, look at their corporate boards, look at their procurement processes and procedures and also look at their investments.

A lot of what I'm hearing is that things have gotten substantially better over the past several decades in terms of redlining and other discriminatory practices. Do you think that sort of stuff is still happening within the insurance industry today?

I think it still happens, and I think as we continue to collect data and as we continue to try to stay abreast of what insurance companies are doing in terms of big data it's critical because we need to make sure that we have folks that are analyzing this data that are able to look into the algorithms that are being used so that discrimination isn't happening. I'll give you an example of what we're doing in California with affinity groups for example.

My department released data showing wide ethnic and socioeconomic disparities in auto insurance group discounts offered to millions of California drivers. And there's a long history of insurance companies redlining as you were saying where communities of color and low-income communities [get poorer coverage], not because of the risk but because of where they are and where they live. … I directed my department to conduct the first-ever investigation into auto group discounts and I wanted to figure out who was getting these discounts, what are the types of professions that are getting these discounts and if there's any discrimination going on. Well, we found evidence of disturbing inequity [affecting] drivers living in ZIP codes with lower per capita income, lower levels of educational attainment and larger communities of color.

Were you able to bring that forward to the insurers to make some changes?

Absolutely, we're in a process now where we're looking at what regulatory changes we need to make. We've been having dialogue with consumer groups and with the insurance industry. Right before we were trying to come up with a solution, COVID hit so it kind of put a pause on it, but we continue to work toward getting to some regulatory reform that we need to make and adopt to make these affinity group discounts much more equitable across the state.

Do you think it would be helpful or even necessary to have more transparency around insurer data to resolve some of these inequities?

Absolutely, transparency in data is critical for us as regulators to understand the algorithms, the reasoning behind how these products are being tailored, and how are they being created and ensuring that they're not discriminatory. Again it could be intentional or unintentional, but as regulators, we need to have access to that same data that is being utilized to create these policies, create these products so that we can ... make sure that they're being equally marketed and distributed and provided to every consumer equally. Transparency is going to be key and that means we need the resources as regulators to hire folks to understand the data ... to help us understand and be able to decipher this big data in a way that we're able to ensure that everyone has equal access to it.

What sorts of challenges are you anticipating for the upcoming fire season because of COVID-19?

As a regulator, we are trying to figure out strategies for how do we safely evacuate people and keep them socially distant during this pandemic, what impact is that going to have on our first responders if we don't have enough first responders to be able to fight the fires given that they might be out sick, and so these are things that we have been working with the governor's office and within the department to figure out. … It's going to be a very challenging year for us as we continue to have this extreme heat and this pandemic, together. It further exacerbates our work, but we're going to do what we've always done, be there for our constituents and help them rebuild.