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NAIC re-examining issues of race in insurance after decades of inaction

After leaving the topic alone for nearly two decades, the National Association of Insurance Commissioners is restarting its work to examine the role that race plays in insurance affordability and availability.

During a special session held as part of the NAIC's virtual summer national meeting, consumer advocates and regulators called for recognition of systemic racism and inherent bias in the insurance industry and offered thoughts on how to tackle the issue.

Birny Birnbaum, a consumer advocate and director of the Center for Economic Justice, said several institutional barriers have slowed or prevented progress to date.

"We need to understand why, despite consumer advocates raising these issues at NAIC for decades, insurers and regulators failed to acknowledge the severity of the problem until the murder of George Floyd," Birnbaum said.

Among those barriers, Birnbaum noted a lack of minority voices in the industry as well as in regulatory and consumer leadership, and an imbalance between consumers' access to critical regulatory and legislative processes and the access afforded insurers and producers, many of which have the ability to use "policyholder funds to press for their interests."

In addition, Birnbaum said trade associations fight to protect practices that "reflect and perpetuate systemic racism" in the industry, including by opposing the recognition of disparate impacts as unfair discrimination, as well as the disclosure of market outcome data.

"The result has been largely that insurers have not addressed the issues of systemic racism because they haven't had to," Birnbaum said.

To work toward dissolving these barriers, Birnbaum called for the development of regulatory data collection and analysis infrastructure and capabilities for insurance regulators and the public to "meaningfully monitor" market outcomes to identify discrimination and disparate impacts, similar to the regulation that other financial institutions have.

In the era of big data, Birnbaum also said the regulatory oversight of advisory organizations has become "obsolete" and has failed to address antitrust and consumer protection issues. Regulatory oversight is needed for currently unregulated data and vendors of algorithms for pricing and other functions, he added.

Robert Klein, a consultant for Robert W. Klein and Associates, pointed out that many insurers used "redlining" and explicitly discriminated against people of color in pricing and underwriting prior to the 1970s. Although much of this "diminished" after 1970, he said concerns over implicit unfair discrimination have continued, and some would argue that explicit unfair discrimination has continued to occur.

He noted that a lot of the existing research and studies on the affordability and availability of insurance reached varying conclusions and are roughly 20 years old now. He recommended updating that research.

Klein also expressed concern over whether certain economically disadvantaged groups can shop effectively for insurance, particularly as insurers increasingly shift online. He also suggested evaluating how well measures to improve affordability and availability worked and to study what more could be done.

Sonja Larkin-Thorne, a consumer advocate and retired insurance executive, has been part of a group looking at the use of big data in insurance and said she found the "clear lack of transparency" and use of information that is never disclosed to consumers "extremely troubling."

"We feel very strongly as we've looked at this that companies should be held accountable for and explain every data point used and all data supporting the underwriting and pricing of insurance products," Larkin-Thorne said. "They should not be allowed to hide behind unregulated data vendors."

Larkin-Thorne called for standards to be developed around the types of data within an algorithm to allow for greater regulation and transparency.

My Chi To, executive deputy superintendent of the Insurance Division at the New York Department of Financial Services, said the key issue is how to move from words and good intentions to meaningful change.

"There's a lot of talk about representation of people of color and other minorities in the C-suite and on boards, and that's critically important," To said. "But it's more important to make sure we are creating a pipeline of diverse, talented people who will grow into the leaders of tomorrow."

To also said "data and accountability" are needed and that transparency would be central to businesses measuring their progress.

"You, as regulators, have been to this dance before," Larkin-Thorne said. "I can recall 30 years ago when we talked about redlining and the old maps, but now is your opportunity to make a difference, and I hope this panel and this movement by the NAIC does just that."

NAIC President and South Carolina Director Ray Farmer said the newly formed commissioner-level Special Committee on Race and Insurance will have its first open meeting in September.