DFS Issues Guidance To Life Insurers On Use Of "External Data" In Underwriting Decisions

On January 18, 2019, New York's Department of Financial Services (DFS) issued Circular Letter No. 1 (2019) to advise life insurers regarding the type of data that they may use when underwriting policies. The guidance was released after the DFS conducted an investigation into insurers' underwriting practices, which followed reports that it had received of the emergence and use of "unconventional" data sources within the industry. The guidance—summarized below—will be of particular interest to insurtech start-ups, as well as established carriers seeking to use new sources of data to underwrite risks.

Circular Letter No. 1 identifies two primary areas of concern regarding the use of "external data" (e.g., data—such as a credit card rating—that is not directly related to an applicant's medical condition), algorithms and predictive models in the life insurance space. First, the use of such tools might unlawfully discriminate against protected classes of consumers.