NEW YORK (Reuters) – The new chief of New York State’s financial services regulator on Friday said she is concerned that the complex technology used by banks and insurers to make business decisions could inadvertently discriminate against some consumers.
“Big data – it’s a risk and opportunity,” said Linda Lacewell, acting superintendent of the New York State Department of Financial Services (NYDFS) at an event for insurance lawyers. “We have to make sure that the way its being done does not hurt the end user of the product,” Lacewell said.
Lacewell’s remarks come as more insurance companies and banks are relying on technology and automation to help make decisions that range from determining auto insurance eligibility and premiums to creditworthiness.
But some regulators are growing increasingly concerned about the complex mathematical formulas, known as algorithms, that are used to make those decisions.
“We have a lot of work to do in the tech industry and that’s going to be a big focus for us,” Lacewell said.
Insurance companies should assess the impact of the algorithms they use and whether the outcomes exclude so-called “protected classes,” Lacewell said.
Protected classes are groups of individuals who are eligible for special protection under various U.S. and state laws, such as those prohibiting discrimination based on race, national origin and sexual orientation.
“I do not suggest that the person doing this algorithm is deliberately trying to be discriminatory and exclude this protected group, but what’s the impact of that algorithm? Lacewell said.
New York Governor Andrew Cuomo, in January, nominated Lacewell, his former chief of staff, to head the regulator, which oversees banking and insurance in the state.
A date for Lacewell’s confirmation hearing has not yet been said, a NYDFS spokeswoman said.
The regulator, which has civil, not criminal, authority, is considered the most powerful U.S. state banking regulator because of its authority over numerous foreign banks that have branches in New York.
Lacewell replaced Maria Vullo, who left the agency in February.
The agency, under Vullo, issued guidance in January that allows life insurers doing business in New York to use social media and other atypical data when deciding premium rates, but also says they must show that those details do not discriminate against certain customers.
Reporting by Suzanne Barlyn; Editing by Steve Orlofsky