Governance Briefing — NYDFS Circular Letter No. 2 (2024) on insurance AI governance

Executive briefing: On 17 January 2024 the New York State Department of Financial Services issued Circular Letter No. 2 (2024), outlining supervisory expectations for life insurers’ use of external consumer data sources (ECDS) and artificial intelligence systems. Boards must oversee risk management programmes that evaluate unfair discrimination, ensure transparency, and document testing. Insurers must maintain written policies covering data governance, model development, vendor oversight, and complaint handling.

Key governance signals

Board oversight. Directors must receive regular reporting on AI use cases, risk assessments, testing outcomes, and remediation actions.
Bias testing mandate. Insurers must evaluate underwriting and pricing outputs for unfair discrimination, including disparate impact analyses and documentation of mitigation steps.
Vendor governance. Contracts with third-party data providers and model vendors must include transparency, audit rights, and termination provisions.

Action checklist

Inventory all AI-enabled underwriting, marketing, and claims models using external consumer data sources.
Establish a governance committee that reviews model risk assessments, validation results, and customer complaint trends.
Update third-party risk management frameworks to capture ECDS providers, ensuring contractual compliance with NYDFS requirements.

Enablement moves

Implement testing playbooks that document sample selection, statistical methods, and remediation plans for bias testing.
Train underwriting, actuarial, and compliance teams on documentation standards, disclosure obligations, and consumer inquiry handling.
Integrate AI governance dashboards into board and senior management packs highlighting incidents, remediation progress, and regulatory updates.

Sources

Zeph Tech supports insurers with NYDFS compliance by deploying AI governance inventories, bias testing protocols, and board reporting frameworks.