AITC Comment Letter: NAIC Third Party Data Model Task Force 2024 Work Plan Exposure Draft

May 6, 2024

Michael Conway, Commissioner
Chair, Third Party Data and Models (H) Task Force
National Association of Insurance Commissioners
1100 Walnut Street, Suite 1500
Kansas City, MO  64105

 Re:  2024 Work Plan Exposure Draft

 Commissioner Conway:

 The American InsurTech Council (AITC) is an independent advocacy organization dedicated to advancing the public interest through the development of ethical, technology-driven innovation in insurance.  We appreciate the effort that Task Members undertook to develop the 2024 Work Plan Exposure Draft (Work Plan).  We particularly appreciate the opportunity for interested parties to provide comments on the project approach described in the Work Plan.

 Understanding third party data and predictive models is among the most important elements of the NAIC’s effort to develop a comprehensive regulatory framework related to insurer use of AI.   Third-party vendors play a pivotal role in the development of digital innovation that clearly benefit consumers.  There is a significant public interest in ensuring the regulatory framework is balanced, i.e., it provides essential consumer protections while encouraging continued innovation.

 As we see it, the task is to develop a regulatory framework that achieves the following objectives:
 ·         Is consistent with existing principles of insurance and insurance regulation.
·         Recognizes that much of the data at issue is already subject to federal and/or state laws outside of state insurance laws.
·         Ensures an appropriate level of transparency involving insurer use of AI that will enable regulators to assess compliance with applicable current statutes and regulations                identified in the NAIC Model Bulletin: Use of Artificial Intelligence by Insurers.
·         Provides clear guidance to insurers regarding their responsibilities for the use of data and models sourced from third-party vendors.
·         Provides third-party vendors with clear guidance regarding regulator expectations and requirements concerning their AI Systems.
·         Protects the intellectual property rights of third-party vendors.
·         Encourages continued innovation and development of insurer use of AI that benefits insurance consumers and the public. 

 Comments on the Project Approach
 AITC agrees generally with the project approach described in the Work Plan.   It makes sense to begin with an effort (i) to identify any comparable existing frameworks; followed by (ii) an evaluation of those frameworks to determine their applicability, in whole or in part, to development of a regulatory framework for third-party data and models.  

 Clarification is needed, however, concerning the exact problem the Task Force seeks to solve.  In other words, what problem or problems exist that can only be addressed by a regulatory framework for third party data and predictive models?   More specifically, what problems or industry failures involving third-party data or predictive models have been identified that can only be addressed by a regulatory framework?  A clear statement of these objectives would bring focus to the Task Force’s efforts, possibly narrow the scope of the project, and help to prevent scope creep.

 AITC’s additional recommendations for the Work Plan include: (i) ensure an open and transparent process, (ii) ensure opportunities for interested parties to provide meaningful input, and (iii) a timetable that allows for the time needed to accomplish items (i) and (ii). 

 1.       Transparency
 The Task Force’s work must be conducted through an open, collaborative process that provides interested parties with meaningful opportunities to participate and provide input.  Transparency is essential for a number of reasons, not the least of which is the importance of obtaining buy – in from third parties, including third party vendors who are liklely to be significantly impacted.   Although the Work Plan suggests that the Task Force intends to invite selected outside third parties to provide input there is no mention of whether those sessions will regulator-only or open to interested parties.  Adding a meeting schedule to the Work Plan and a statement identifying which sessions will be open interested parties would be extremely helpful for planning and other purposes.

 2.      Opportunities for Interested Party Participation
 We support the Task Force inviting speakers to present information about existing frameworks. However, the Work Plan should state who will select the invitees, and whether there will be an opportunity for interested parties to provide recommendations for guest speakers.    Further, the Work Plan should state that interested parties can submit their own framework recommendations.  While the guest speakers will no doubt make a meaningful contribution, including a process for input and recommendations from interested parties would ensure that the Task Force has the opportunity to consider the widest range of potential framework-options. 

We also note that the Work Plan does not provide for a comment period regarding any recommendations.  Perhaps a comment period is contemplated as a part of “[d]iscuss potential frameworks” in the October – November timeframe.  If so this should be clarified.  If no comment period is contemplated, this is a glaring omission and would be a significant departure from customary practice at the NAIC, which is intended to ensure an open, deliberative process and thoughtful consideration of the issues. 

 3.       Timetable
 The draft work plan allows for just six months to decide upon a “general idea for a framework” in time for NAIC Fall Annual Meeting.   Given the amount of work, the wide range of issues, the complexities involved, and the need for an open process that includes opportunity for public comment on draft recommendations, this seems extremely ambituous if not unrealistic. Rather than adhere to an arbitrary deadline, we think a better approach (and one likely to save time in the end) would be to take the time needed to build consensus around a sound approach. 

 Finally, we note that only four weeks has been allotted to “discuss potential frameworks.”  We read this as providing no opportunity for interested parties or even other regulators to review the Task Force recommendation with sufficient time to provide thoughtful comments.  An exposure and comment period consistent with NAIC practice and procedure should be added to the timetable.  

 Thank you again for the opportunity to address our comments.

 Respectfully Submitted, 

Scott R. Harrison
Co-Founder, American InsurTech Council
sharrison@americaninsurtech.com