That is the primary installment of a two-part take a look at the highest 10 insurance coverage regulatory developments of 2020 by attorneys at Locke Lord. The primary half covers COVID-19, Insurtechs, Knowledge Privateness, Race Equality and Pharmacy Profit Managers. The second installment on Jan. 26 will take a look at Antitrust, Captives, Service Contracts, Journey Insurance coverage and Surplus Traces.
COVID–19 Pandemic Turmoil
The COVID-19 pandemic has had extreme opposed penalties to nearly all U.S. companies, together with insurance coverage. Whereas the enterprise interruption insurance coverage protection litigation dominated this yr’s insurance coverage information and affect on property and casualty insurers writing the sort of protection and their insured enterprise clients, state insurance coverage regulators additionally confronted essential challenges within the wake of the pandemic. Their responses included:
- Imposing moratoriums on cancellations and non-renewals of sure forms of insurance coverage insurance policies for insureds’ failure to pay insurance coverage premiums primarily based on COVID-19 associated monetary hardships
- Requiring deferrals of insurers’ assortment of insurance coverage premiums
- Requiring refunds of auto insurance coverage premiums primarily based on diminished danger exposures due to shelter-at-home governmental state of emergency orders
- Facilitating distant testing and licensing of insurance coverage brokers
- Facilitating use of digital signatures, distant on-line notaries and telehealth
- Requiring waivers of cost-sharing (deductibles and co-pays) underneath medical insurance insurance policies for COVID-19 testing
- Requiring early refills of prescribed drugs coated underneath well being plans
- Suspending deadlines for insurance coverage declare filings and appeals
- Scrutinizing community adequacy necessities for well being insurers
All-in-all, state insurance coverage regulators reacted swiftly and adroitly to the pandemic spurred challenges going through the insurance coverage {industry} and the insurance coverage clients they shield.
On the federal aspect, the U.S. Home of Representatives launched in Might the Pandemic Danger Insurance coverage Act (“PRIA”), modeled after the Terrorism Danger Insurance coverage Act of 2002, as amended (“TRIA”). PRIA has been characterised by Congresswoman Maxine Waters as “a reinsurance program just like [TRIA] for pandemics, by capping the entire insurance coverage losses that insurance coverage corporations would face.” PRIA would require taking part insurers to “make obtainable” insurance coverage protection for a “coated public well being emergency,” which incorporates “any outbreak of infectious illness or pandemic” on phrases that don’t differ materially from the phrases relevant to losses arising from different occasions. Like TRIA, taking part insurers would wish to fulfill particular person and industry-wide deductibles earlier than searching for federal reimbursement for losses. Critically, nevertheless, as presently contemplated, participation within the Pandemic Danger Insurance coverage Program could be voluntary in nature, whereas TRIA is a compulsory program relevant to sure business property and casualty insurance coverage insurance policies.
InsurTech Development and Regulatory Response
Regardless of, or maybe due to, the COVID-19 pandemic, no space of tech was hotter than insurtech in 2020. With a number of corporations going public via each SPAC transactions (Clover and Metromile) or direct listings (Lemonade, Root and OSCAR), in addition to investments valuing others at nicely over a billion {dollars} (Hippo), insurtech went from area of interest to mainstream quick, fueled partially by the sector’s deal with automation, effectivity and digital platforms which allowed them to scale regardless of COVID-19 restrictions.
Recognizing the speedy improvement of know-how enabled insurance coverage platforms, the Nationwide Affiliation of Insurance coverage Commissioners (“NAIC”), reacted with each reforms to beforehand outdated legal guidelines inhibiting these insurtech enterprise fashions and elevated deal with the potential future regulation of massive knowledge, synthetic intelligence, machine studying and accelerated underwriting within the insurance coverage house.
On the reform aspect of issues, the NAIC up to date language in its Mannequin Unfair Commerce Practices Act concerning anti-rebating and inducement that beforehand restricted almost all rebates and inducements to permit for the availability of sure companies and objects at diminished or no price, if such objects or companies lead to risk-mitigation, together with different accommodating revisions. This variation has been the main target of insurtechs for a quantity years, and would enable, for instance a business insurance coverage service to supply its insureds a free water leak detection system, as a method of mitigating injury from burst pipe failures.
So far as elevated regulation of insurtechs, whereas the NAIC has not adopted or beneficial any particular mannequin legal guidelines or rules with respect to synthetic intelligence and machine studying, the Large Knowledge and Synthetic Intelligence Working Group adopted the “Rules of AI”, outlining the 5 ideas it is going to use in evaluating regulation of AI, specifically that the insurance coverage {industry}’s use of AI should be (i) honest and moral, (ii) accountable, (iii) compliant, (iv) clear and (v) safe, protected and sturdy. As well as, the NAIC’s Producer Licensing Activity Pressure is within the strategy of finalizing a white paper on the function of chatbots and synthetic intelligence (AI) within the distribution of insurance coverage and the potential want for regulatory supervision of those applied sciences, one thing the insurtech {industry} shall be keenly centered on in 2021, particularly in gentle of the latest adoption of the B.O.T. Act by California. Equally, the Casualty Actuarial and Statistical Activity Pressure adopted a white paper on the regulatory overview of predictive fashions, whereas the Accelerated Underwriting Working group continued its work on creating regulatory steerage concerning the usage of exterior knowledge and knowledge analytics in accelerated life underwriting.
Knowledge Privateness and Safety Regulation Enlargement
California Shopper Privateness Act
Like all different companies that acquire or obtain shopper private details about California residents, the insurance coverage {industry} shall be affected by the California Privateness Rights Act (“CPRA”). The CPRA, which was adopted in November 2020 by means of voters’ passage of California poll initiative Proposition 24, augments and strengthens shopper privateness protections underneath the California Shopper Privateness Act, the enforcement date for which occurred on July 1, 2020. The CPRA, amongst different newly created shopper privateness rights, offers shoppers the appropriate to restrict the use and disclosure of a brand new class of “delicate” private data, together with well being, monetary, racial and exact geolocation knowledge. It additionally permits shoppers to appropriate inaccurate knowledge about them and establishes the California Privateness Safety Company, a brand new state company that may implement the CCPA in lieu of the California legal professional basic.
Nationwide Affiliation of Insurance coverage Commissioners Knowledge Safety and Privateness Legal guidelines
The NAIC’s Knowledge Safety Mannequin Act, which is a cybersecurity breach legislation relevant to most insurance coverage {industry} licensees, has now been adopted in a single kind or one other in eleven states. Throughout 2020, Indiana, Louisiana and Virginia turned part of this checklist, which is more likely to broaden in 2021.
The NAIC’s Privateness Protections (D) Working Group, shaped in late 2019, started its work in 2020 on reviewing the wants and space for modernizing the NAIC’s Insurance coverage Data and Privateness Safety Mannequin Act (created in 1982) and Privateness of Shopper Monetary and Well being Data Regulation (created in 2000 within the wake of the Gramm-Leach-Bliley Act). The potential upgrades to those two fashions might take the type of sure ideas from the CCPA and the European Union’s Common Knowledge Safety Regulation.
NY Division of Monetary Providers First Cybersecurity Regulation Enforcement
In July 2020, the New York Division of Monetary Providers introduced its inaugural enforcement motion underneath its cybersecurity regulation in opposition to First American Title Insurance coverage Firm for alleged unauthorized entry to a whole lot of tens of millions of paperwork containing shoppers’ private private data, as a consequence of a recognized vulnerability within the firm’s public-facing web site making the information accessible with none login or authentication necessities. This case serves as a powerful warning that the NYDFS will pursue different alleged violations of its cybersecurity regulation.
Race Equality and Insurance coverage
Within the wake of the nationwide awakening concerning the affect of race on numerous establishments throughout the USA, the NAIC shaped NAIC Particular Committee on Race and Insurance coverage (“Particular Committee”), and requested itself, “Does the disparate affect of risk-based pricing choices represent unfair discrimination?”
Practically all states observe some model of the NAIC’s Unfair Commerce Follow Act (“Mannequin Act”), which prohibits, usually, the “unfair discrimination” of “people or dangers of the identical class and of basically the identical hazard” with respect to each charges and insurability.” The Mannequin Act additional particularly prohibits taking into account intercourse, marital standing, race, faith, or nationwide origin of the person, however solely with respect to insurability, not as to the charges charged to such shoppers (besides within the case of race, which was prohibited pursuant to the Civil Rights Act of 1964). Notably, solely a handful of states have express legal guidelines limiting the usage of sure of those elements in sure strains of insurance coverage (as an example, Michigan now prohibits all non-driving elements within the willpower of non-public auto insurance coverage charges and New York, via its Round Letter No. 1, now basically requires life insurers to show that every one AI, machine studying and “various knowledge” and their sources do not have a prohibited discriminatory disparate affect on protected courses). As an alternative, most states haven’t detailed with a lot specificity what constitutes unfair discrimination of their statutes or rules
The NAIC, state insurance coverage regulators, shopper advocates, and the insurance coverage {industry} as an entire are particularly centered on the exponential development of the {industry}’s reliance on synthetic intelligence, machine studying, and massive knowledge. Some observers have predicted the top of most risk-based underwriting and pricing as we now comprehend it for a lot of the insurance coverage {industry} in gentle of those points, a lot in the identical method medical insurance underwriting was simplified through the Inexpensive Care Act. Nevertheless, it’s extra probably that rules will deal with monitoring to make sure such disparate impacts don’t happen and shall be promptly remedied after they do.
Pharmacy Profit Managers Regulation
In the course of the previous few years, a number of states handed laws aimed toward regulating pharmacy profit managers (“PBMs”) for the safety of small or mom-and-pop pharmacies that, in some circumstances, had been receiving from PBMs reimbursements for prescribed drugs coated by well being plans lower than the pharmacies’ prices of buying these medicine. In December 2020, the Supreme Court docket, in Rutledge v. Pharmaceutical Care Administration Assn. (an 8 to 0 opinion), dominated that an Arkansas PBM statute was not preempted by ERISA.
The Arkansas legislation requires that PBMs (a) often publish their most allowable price (“MAC”) lists for prescribed drugs when their wholesale price will increase and (b) reimburse pharmacies for his or her purchases of prescribed drugs at a value equal to or higher than their wholesale price and permits pharmacies to refuse to promote a prescription drug if a PBM’s reimbursement fee is decrease than a pharmacy’s buy price. The Court docket discovered that ERISA didn’t preempt the Arkansas PBM legislation as a result of, whereas the legislation did have the impact of accelerating the prices of an worker profit plan, the legislation didn’t power employer-sponsored group well being plans to undertake any substantive plan adjustments, noting that not all states legal guidelines that have an effect on an ERISA plan and the Arkansas PBM legislation doesn’t consult with ERISA, doesn’t apply solely to ERISA plans and applies to PBMs no matter whether or not they handle an ERISA plan. This resolution overturns a 2018 case from the Eighth Circuit that held ERISA preempted the same North Dakota legislation and will forestall an attraction pending within the Tenth Circuit of an Oklahoma District Court docket case upholding an Oklahoma PBM legislation in opposition to an ERISA preemption problem.
Subsequent: Antitrust, Captives, Service Contracts, Journey Insurance coverage and Surplus Traces.
