Regulators scrutinizing insurtech for 'unfair discrimination': Connecticut Insurance Department's Kosky

By Isha Marathe

April 17 - (The Insurer) – As emerging technologies like generative artificial intelligence and agentic AI are integrated into insurance workflows, U.S. state regulators are collaborating on ways to get a peek into the algorithmic "black box," hoping to tamp down on unfair discrimination and bad marketing practices, said Jared Kosky, deputy commission of Connecticut Insurance Department.

Kosky, who attended the ClimateTech Connect conference in Washington D.C., which focused on building climate resilience into new insurance technologies, said his goal is to educate insurtech vendors on insurance best practices as they build out new solutions for the industry.

"We want to see the technology, we want to see the advancements, we want to see the innovation within the industry, it needs to happen," he said. "But bear in mind, we are going to be asking questions through the insurance companies that we regulate."

Currently, a concern for regulators that discuss new technologies through the National Association of Insurance Commissioners is that a significant amount of AI technology comes with the proverbial "black box," Kosky said. A black box refers to a system that can only be understood via its inputs and outputs, without any insight or knowledge into its internal workings.

"We may not regulate the (tech) vendor directly, but if your product is being used by the insurance company for rate setting (or) claims handling, there needs to be some transparency to it, there needs to be some explainability to it," he said.

"And we will press upon the insurance companies for that. So when you sell their product, they're going to ask those questions to you, because they have to report to regulators."

One of the first places regulators across the country are seeing potential gaps in compliance with insurance regulations is tech marketing strategies, in both life and non-life lines, he said. Using technology to identify potential customers has pinged on regulators' radars because of the tech's propensity for discriminatory selection.

Kosky said regulators want to dig into the algorithms that underpin insurtech solutions, and the data that trains them, because it would clarify the places where "unfair" discrimination is taking place.

"Insurance, in and of itself, has a level of discrimination. I mean, we classify people based upon risk classes based upon historical experience and data," Kosky said. "What we ensure is that there's not... 'unfair' discrimination."

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As Kosky, the NAIC and other regulators look to the coming months, he said they are hoping to facilitate tech sandboxes for carriers to experiment with technology.

Kosky acknowledged that since the insurance industry has been a highly regulated sector for nearly 150 years, the vertical already lags on using tech. So, cultivating safe environments to try out emerging tools is essential.

He added that he hopes more carriers bring regulators in early in the process of a new integration, not only to safeguard themselves from enforcement actions for falling out of compliance, but also to build out ways to communicate with policyholders about changing rates and premiums, and the rationale and technology behind those decisions, he said.

Ultimately, whether insurers are tech-forward or not, technology-focused scrutiny is likely to come their way as all industries go through a digital revolution.

"We live in a cyber world nowadays," Kosky said about a trend of data privacy actions against insurers. "And a rising tide lifts all boats. We are seeing these (data privacy suits) throughout all industries. And you'll see it in the insurance industry."

For Connecticut specifically, Kosky is focused on educating consumers of insurance about the growing risk of floods, as most homeowners' policies don't include flood insurance in the state.

"Where it rains, it can flood," he said, as he tries to bring homeowners insurance carriers, brokers, and agents into the fold of passing along that message.