Senate Bill S5486

                                 
BILL NUMBER: S5486

SPONSOR: COMRIE
 
TITLE OF BILL:

An act to amend the insurance law, in relation to the use of telematics
systems by insurers

 
PURPOSE GENERAL IDEA OF BILL:

To ensure that the algorithms powering telematics systems offered to
consumers are transparent

 
SUMMARY OF PROVISIONS:

Section 1 amends insurance law section 2313 to define "telematics
system" and include third party developers or vendors of telematics
systems in the definition of "rate service organization." It also
requires third party developers or vendors of telematics systems to file
their model or algorithm with DFS.

Section 2 adds a new section 2304-a, titled "telematics systems," to the
              

insurance law which requires insurers that utilize telematics systems
and third-party developers and vendors of telematics systems to provide
certain disclosures to the Department of Financial Services and consum-
ers.

These disclosures include an explanation for how each factor is used in
the model or algorithm, proof that each factor is connected to risk of
loss and incorporated in a manner that directly reflects that relation-
ship, and what testing was done to reduce or eliminate unintended bias
and disparate impacts resulting from the use of the telematics system.

Insurers and third-party developers and vendors are required to publicly
disclose their scoring methodologies.

Consumers must be allowed to access any driving data that the telematics
system has collected on them.

Insurers and third party developers and vendors are prohibited from
using the data collected from telematics systems for any purpose other
than underwriting and rating decisions, unfairly discriminating based on
an individual's membership in a protected class, and using data, algo-
rithms, or predictive models that unfairly discriminate against an indi-
vidual based on their membership in a protected class.

The superintendent is authorized to promulgate rules and regulations.

Section 3 is the effective date.

 
JUSTIFICATION:

Insurers have historically used a combination of driving-related factors
such as miles driven per year and driver safety records, and non-driving
factors including demographic information to price insurance policies.
Using non-driving information such as credit history, homeownership
status, education and occupation can potentially result in discriminato-
ry pricing. In 2018, the New York Department of Financial Services (DFS)
issued a regulation to restrict use of education and occupation unless
insurers can demonstrate that its use is not unfairly discriminatory.
Telematics programs, which use consumer generated data that is collected
via mobile apps, smart phones or other devices, have substantial poten-
tial to replace those unfair rating tools that rely on socio-economic
and other non-driving characteristics and provide insurance coverage
that is more affordable prices. However, it is not clear exactly which
specific data factors insurers are using in telematics programs to meas-
ure consumer driving habits, and whether those factors appropriately
measure driver risk, are support by adequate actuarial justification,
and are fairly priced. Some data factors, such as the time of day the
vehicle is operated, could potentially discriminate
 against workers who work in the evenings or in overnight shifts.  The
Federal Insurance Office has expressed concern that the big data method-
ologies used in telematics programs "may hide intentional or uninten-
tional discrimination against protected classes."(1)

Insurance companies also collect large amounts of customer data through
telematics devices that can potentially be retained for long periods of
time, used for marketing purposes, and used in unfair ways in claims
settlement process. A consistent, transparent method for underwriting,
pricing, and ensuring customer privacy has not yet developed, leaving
gaps in government oversight and consumer protections.

A 2021 J.D. Power survey found that 16% of U.S. car insurance customers
were signed up for a telematics program and 34% said they were willing
to try usage based insurance. However, a 2021 poll published in Insur-
ance Journal found that 23% of respondents said they do not have a tele-
matics-based insurance app installed because of privacy concerns.(2)
Given the increase in telematics usage and its likely continued growth,
the area of telematics should be regulated for consistency and transpar-
ency.

 
PRIOR LEGISLATIVE HISTORY:

2024: 5553

 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:

To be determined.

 
EFFECTIVE DATE:
This act shall take effect on the ninetieth day after it shall have
become law.
(1)"Report on Protection of Insurance Consumers and Access to Insur-
ance." Federal Insurance Office. November 2016, pg. 6. Available at
https://home.treasury.gov/system/files/311/2016_FIO_
Consumer_Report.pdf.
(2) Obstacles to Wider Adoption of Usage-Based Insurance Remain, Insur-
ance Journal, 9/7/2021, available at: https://www.  insurancejour-
nal.com/news/ national/2021/09/07/630484.htm