Colo. Bill Restricting Insurers’ Use of External Data and Algorithms Passes First Hurdle

Colorado Senate Bill 21-169 passed its first test on May 3, 2021, as the Senate Business, Labor & Technology Committee approved a strike-below version of the bill by a 4-3 margin. The revised bill would:

• Prohibit unfair discrimination based on an individual’s race, color, national or ethnic origin, religion, sex, sexual orientation or gender identity in connection with any insurance practice specified in the bill.
• Prohibit insurers from using external consumer data, algorithms or predictive models that unfairly discriminate against individuals based on membership in one of the foregoing protected classes. (Unfair discrimination would occur if the predictive capability of an external consumer data source, algorithm or predictive model is derived in substantial part from its correlation with membership in a protected class.)
• Direct the insurance commissioner to adopt rules implementing the legislation after conducting a stakeholder process with insurers, producers, consumers and other interested parties. Such rules could be for specific types of insurance and could establish a means by which an insurer can demonstrate that it has tested for unfair discrimination. The rules could not take effect prior to January 1, 2023.

The bill states that any rules adopted by the commissioner must require each insurer to:

• Provide information to the commissioner regarding its use of external consumer data, algorithms and predictive models.
• Adopt a risk management framework that is reasonably designed to determine, to the extent practicable, whether the insurer's use of external consumer data, algorithms or predictive models would unfairly discriminate based on membership in a protected class.
• Provide the commissioner with an assessment of the results of its risk management framework and actions taken to minimize the risk of unfair discrimination, including ongoing monitoring.
• Provide an attestation by the insurer’s chief risk officer that the insurer has implemented the risk management framework on a continuous basis.

The bill also would create a safe harbor for insurers that comply with the foregoing requirements.

Senator Janet Buckner, the bill's sponsor, invited further industry engagement and signaled that amendments may be likely — but time is running short.