Insurer Extracontractual Liability for Biased Algorithms and AI in Underwriting and Claims Handling

Recording of a 90-minute CLE video webinar with Q&A


Conducted on Tuesday, August 31, 2021

Recorded event now available

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Course Materials

This CLE course will explore the increasing risks to insurance companies and policyholders alike of using insurance technology and software, known generally as "insurtech," to investigate, adjust, and settle claims. The panel will discuss the conflict between insurtech and an insurance company’s duty of utmost good faith in all phases of the insurance relationship, from negotiation to claims processing. The program will review what causes of action policyholders are alleging, the shortcomings of software, how the understanding of the insurance company's management of this technology affects these cases, and the reliability and admissibility of the software in court.

Description

Increasingly, insurance companies are turning to third-party vendors and software for underwriting, premium calculation, claims adjustment, and other functions previously done in-house. Some of this "insurtech" is software as a service (SaaS), while other companies sell artificial intelligence (AI)-based predictive analytics (algorithms). Insurtech is marketed to and designed to benefit the insurance company, its shareholders, venture capital, and other investors. Insurtech solutions promise cost efficiencies and new revenue streams, and predictions are that insurtech will shift the traditional insurance business model from loss compensation to loss prediction and prevention.

On the other hand, the U.S. Supreme Court has stated that insurance contracts are different from ordinary commercial transactions and are of the greatest public concern. All parties to an insurance contract (insurer, broker, policyholder) must perform their duties with the highest degree of good faith. For the insurance company, this duty demands that the insurance company not elevate its own self-interest above the policyholder's interests and must treat the policyholder fairly and honestly, and must treat the insurance company’s financial interest no greater than the policyholder’s financial interest.

From coast to coast, policyholders assert that using software expressly designed to favor the insurance company is irreconcilable with the duty of utmost good faith. They assert that insurtech fails to fairly and honestly investigate claims, uses formulas that artificially and unfairly lower settlement amounts, and is based on historically biased and inaccurate claims payment data incorporating decades of stereotypes and artificially suppressed values. Insurance companies and brokers are facing lawsuits for breach of contract, bad faith, RICO, conspiracy, negligence, professional malpractice, and in some states, violation of consumer protection laws.

Listen as this experienced panel discusses liability arising from the use of insurance technology and software.

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Outline

  1. Automated adjustment software and programs explained
  2. Increase in the use of AI and its impact on first- and-third party claim analysis
  3. Contractual and extracontractual claims
    1. Breach of contract
    2. Bad faith
    3. RICO
    4. Conspiracy
    5. Negligence/malpractice
    6. Consumer protection law

Benefits

The panel will review these and other pivotal issues:

  • When and why did insurtech arrive in the insurance industry, and who are the drivers?
  • What kind of due diligence should insurance companies undertake before adopting insurtech, and for what claim should it be applied?
  • How can software perform in the utmost good faith?
  • Is insurtech reliable, and does it produce the same results consistently?
  • Where does the data supporting AI come from, and is it market-specific?

Faculty

Buchanan, John
John G. Buchanan, III

Senior Counsel
Covington & Burling

Mr. Buchanan, senior counsel in Covington's Washington office and the firm's first Insurance Practice Group...  |  Read More

Horkovich, Robert
Robert M. Horkovich

Managing Shareholder
Anderson Kill

Mr. Horkovich focuses his practice on the area of insurance recovery. He has obtained over $5 billion in...  |  Read More

Ryles, Tim
Tim Ryles

Owner and President
Tim Ryles Consulting

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 |  Read More

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