USA LAW AND PRACTICE Contributed by: Margo H.K. Tank, Michael Fluhr, Era Anagnosti, Kristin Boggiano, David Stier, Liz S. M. Caires, Adam Dubin, Emily Honsa Hicks, Kathleen Birrane and Chezelle McDade, DLA Piper LLP
8.2 Treatment of Different Types of Insurance Different types of insurance are treated differently in essentially every aspect of their respective business - es across the entire insurance business spectrum, including different standards related to marketing, sales, underwriting, pricing, financial requirements, reserving, reinsurance, claims handling, etc. With respect to each of these functional areas, technology- driven methodologies may trigger different treatment by regulators by line of business. For example, with respect to life insurance, the use of non-traditional risk factors or AI in automated underwriting may result in the imposition of advanced notice obligations in the event of an adverse underwriting decision and the NAIC has adopted guidance regarding regulatory oversight specific to automated life insurance under - writing that does not apply to other lines of insurance. Regtech providers are not regulated directly if the business solely develops and aids with the imple - mentation of software solutions, data analytics, and automation tools to enhance regulatory compliance processes and reporting requirements (as opposed to providing regulated products and services directly to customers). Instead, most regtech providers are gov - erned by contractual obligations which may include requirements to ensure compliance with financial law and regulation. See 2.8 Outsourcing of Regulated Functions . 9.2 Contractual Terms to Ensure Performance and Accuracy See 9.1 Regulation of Regtech Providers . 9. Regtech 9.1 Regulation of Regtech Providers 10. Blockchain 10.1 Use of Blockchain in the Financial Services Industry Traditional financial services industry players are testing blockchain technology to address enhanced transaction efficiencies, security, and transaction record integrity and auditability. Most tend towards
federal securities laws. Further, the definition of a bro - ker is broadly construed and could include persons who provide services to registered brokers, thereby requiring a programmer to register as a broker. The definitions of an investment adviser and dealer are similarly broadly construed, such that providing ser - vices in the context of investment advice (which might implicate adviser registration requirements) or propri - etary trading (which might implicate dealer registration requirements) should be evaluated on a case-by-case basis. To the extent a person must register as a broker, dealer, and/or investment adviser, such registration comes with additional regulatory requirements and oversight. The use of AI-driven technologies in underwriting con - tinues to grow in the insurance industry. Underwrit - ing is a regulated activity for admitted insurers and AI use in the performance of regulated activities trig - gers considerations related to data privacy and use, data security, and the responsible use of advanced computational methods, including AI. 25 states have now adopted the model bulletin on the Use of Artificial Intelligence Systems by Insurers adopted in Decem - ber 2023 by the National Association of Insurance Commissioners (NAIC), and the NAIC is now devel - oping detailed questionnaires to be used by regulators when evaluating an insurer’s AI use, including requir - ing detailed inventories by use case, evidence of com - pliance with the bulletin and underlying laws (including the adoption of AI governance and risk controls), and evidence of validation and testing efforts. 8. Insurtech 8.1 Underwriting Processes Digital platforms and the sharing industry continue to embed insurance, make insurance available at “check- out”, or offer “protection packages” that appear to have the attributes of insurance. Whether these activi - ties are insurance transactions that require licensure and how revenue can be lawfully shared is a regu - latory consideration in negotiations and agreements between the platform and the insurer or underwriter.
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