NYDFS Circular Letter No. 7

Circular Letter No. 7, issued by the New York State Department of Financial Services (NYDFS) on July 11, 2024, is the most detailed state-level AI guidance for insurers. It is not new law: the Department describes its own purpose as identifying its expectations for insurers using artificial intelligence systems or external consumer data in underwriting and pricing. Its register is “should” almost throughout, and its force comes from the anti-discrimination statutes it is built on.

Two exercises sit at its center, and they are frequently run together. The proxy assessment covers external consumer data only: evaluate whether the data source correlates with protected-class status, and if it does, consider whether a legitimate business necessity requires it. The comprehensive assessment covers external data and AI systems alike, in three numbered steps: whether the use produces a disproportionate adverse effect, whether a legitimate, lawful, and fair explanation accounts for it, and a documented search for a less discriminatory alternative. Neither obliges the insurer to go and collect new data about individuals: protected-class membership may be determined from data the insurer already holds or reasonably inferred using accepted statistical methodologies. An examination will ask for the documentation afterwards.

Because New York is a large market, the letter effectively sets a national standard for carriers that write there. Compliance usually requires legal, actuarial, and data-science coordination. See our guide to NYDFS Circular Letter No. 7 and the proxy test, and the New York state page for the departures from the NAIC model bulletin, quoted from the instruments themselves.