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Valuable Insights Regarding Insurance Regulation & use of Alternative Data in Underwriting

Valuable Insights Regarding Insurance Regulation & use of Alternative Data in Underwriting
14 May 2021, 4 Min Read

The growing pressure from consumers for faster and accurate underwriting processes has pushed insurance companies to consider the importance of alternative data in underwriting. Alternative data makes underwriting fast, accurate and therefore helps insurance firms to make informed decisions.

Because of the privacy and technical issues that come with the use of alternative data, there are state and federal level regulations that provides a framework for conducting underwriting use non-conventional data sets. Knowing these regulations allows your insurance firm to operate within the government’s guidelines.These guidelines are important in the following ways:

  • They protect your clients’ right to privacy
  • The rules guide underwriters on the extent they can go in search of clients’ data
  • The regulations guide insurance underwriters on how to use client’s data
  • Underwriters can use the laws provided to defend their actions in case they are sued by clients
  • They protect the clients against consumer fraud
  • The guidelines protect people against discrimination and unfair treatment
  • The regulations give direction on what can be done in case of infringement of rights provided by the regulations.

State and Federal Regulations to Consider When Using Alternative Data

As you handle client’s data, here are New York state and federal regulations you should consider:

Fair Credit Reporting Act (FCRA)

Fair Credit Reporting Act (FCRA) was established in 1970, and its primary mandate is to protect client information collected by consumer reporting agencies. As an underwriter, here are the guidelines that you should follow:

Always inform the client in case your alternative data negatively affects their insurance access. Suppose you use a credit score analysis tool like Milliman’s Irix® you realize that your client has a history of defaulting their mortgage payments. As an underwriter, you profile this client as high risk, and therefore you offer them higher rates to caution your carrier. You are obligated to explain your decision (in writing) to the client.

You should only use verifiable data. Unless you are sure that the information you are using is correct, and verifiable, refrain from using it. This goes for information that works for or against the client. To be sure that you are using data that is true, you can use a tool like Transunion’s TrueRisk.

Your client’s data is confidential. The sole purpose of using alternative data is to get a clearer picture of the insurance applicant. You should, therefore, refrain from sharing clients’ data with people outside the purpose of evaluating the applicants’ insurance pricing.

NYDFS Cybersecurity Regulation (23 NYCRR 500)

As an underwriter working in New York State, you are bound by NYDFS Cybersecurity Regulation. The regulation calls for the protection of clients’ data by ensuring that the company’s systems are protected from cybercrime.

You should, on your part ensure that you protect passwords of your work tools like email log-in information, computer passwords among Other information that can be used to breach the company’s network. You are also obligated to attend in-house cybercrime protection training and other activities. Health insurance underwriters such as MIB use special codes to represent customer’s data. This prevents them from collecting and storing personal information like examination reports, diagnostic files, underwriting information and medical history.

Health Insurance Portability and Accountability Act of 1996 (HIPAA)

Although this is majorly an act that guides healthcare providers, you need to familiarize yourself with its guidelines, especially if you are underwriting for a medical insurance cover. Tools like the Milliman•s RX prescription uses clients’ prescription drug history to accurately determine mortality risks Of different clients. Knowing HIPPA laws surrounding the use medical data is invaluable when complying with regulations while using data analytic tools like Milliman Risk Score 2.0.

Health Insurance Portability and Accountability Act Of 1996 (HIPAA) provides guidelines of which information you can use technology to collect, and with whom you can share the information. This act is especially sensitive given the private nature of medical records.

Let Us Help You

Using correct data for your underwriting needs is the first step to complying with the alternative data regulations. When you use data that is generated using context-aware artificial intelligence (Al), you are sure about the verifiability of claims that you make. You should also be able to access your clients’ prior applications so that you can compare them to their current applications

If you are looking for data that will help you do accurate underwriting and protect you from lawsuits emanating from unverifiable data, Pilotbird has a groundbreaking Al data generation that not only enhances accuracy but is also fast to generate and easy to use. Contact us to connect with our team or even better, request a demo!

Mani Kaur is an industry thought leader in the insurance industry with numerous articles on technology, innovation, and financial services.

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