Back in January 2023, I highlighted the case of Jacqueline Huskey versus State Farm. What was significant about her case was the way in which a consumer group and a law firm had backed up Huskey’s experience with data driven research to show that she was far from being alone. This meant her experience could be positioned within evidence of a broader pattern of discrimination.
This is a case that, if allowed to proceed, would lift the lid of how claims and counter fraud decisions systems work and the impact they are having. As some well known technology providers are also part of the claim, it has significance for insurers outside of the US.
Last week, a district judge in Illinois allowed the case to proceed on one of its three counts. State Farm failed in its efforts to have the case dismissed in its entirety. Where the plaintiffs succeeded was in relation to section 3604 (b) of the Fair Housing Act (FHA).
The Fair Housing Act protects people from discrimination when they are renting or buying a home, getting a mortgage, seeking housing assistance, or engaging in other housing-related activities. The Illinois judge felt that a claims service fell within the scope of the FHA’s Section 3604 (b). The FHA is a federal piece of leglisation so the eventual outcome of this case will affect all insurers in the US.
What that Research Found
Before weighing up the implications of this development, it’s worth take a quick look at what the plaintiffs are alleging. This is what their research in 2022 found...
“The researchers looked at measurements like the number of interactions that claimants had with State Farm representatives, the length of time it took for a payment to be made after a claim was filed and the amount of extra paperwork that State Farm asked for before agreeing to pay a claim. The findings, cited in the lawsuit, showed that Black homeowners had a significantly harder time by several measures. For most white customers, the process typically took fewer than three interactions before claims were approved. White customers were also one-third more likely to have their claims paid out in less than a month. The study found that Black customers were 20 percent more likely to have to talk to a State Farm representative on at least three separate occasions before having their claims approved. They were also much likelier to have to submit extra paperwork.”
A Lot of Data
That’s the basis of their claim then. Let’s quickly look now at what sort of data State Farm has been collecting about its policyholders. The district judge’s opinion listed the following...
“...classifications such as race, sex, marital status, familial status, and gender; physical characteristics and/or descriptions; education, employment, employment history, professional licenses or designations; financial information, medical information or health insurance information; personal property records, products or services purchased, obtained, or considered, or other purchasing or consuming histories or tendencies; biometric information such as genetic, physiological, behavioral and biological characteristics that can be used to establish individual identity, including but not limited to fingerprints, voiceprints, retina scans, and sleep, health or exercise data; internet usage information such as browsing history, search history, and information regarding customers' interaction with a website, application, or advertisement; geolocation data such as precise physical location or movements and travel patterns; and sensory data such as audio recordings of customer care calls."
Her opinion then referred to State Farm creating...
“...profiles for its customers that reflect their “preferences, characteristics, psychological trends, predispositions, attitudes, intelligence, abilities, and aptitudes.” "
It’s difficult to think of data that they haven't been collecting about policyholders.
Irrespective of its outcome, when it goes to court, this case will bring into the public domain an awful of information about the data insurers are using and the systems that are turning that data into decisions. This attention will inevitably raise questions for which insurers must have good answers prepared.
While the case will be centred round discrimination in claims and counter fraud, it seems inevitable that underwriting will also in some way be referenced as well. The links are too wide and detailed for availability, cover and pricing not to be touched upon.
State Farm is the biggest insurer of household policies in the US, yet it uses technologies that many other insurers in the US and around the world use too. A lot of consumer groups, law firms and regulators will therefore be watching this case closely.
Should the case succeed, State Farm and other insurers using these systems in similar ways will face the prospect of at best having to rapidly reconfigure, test and relaunch them, and at worst, turn them off. The implications for their overall business therefore range from hugely significant to virtually catastrophic. Does any insurer nowadays have any form of backup plan to switch to the manual servicing and settlement of claims? I very much doubt it.
Time for a Rethink
I’ve been saying for several years that claims is the function creating most ethical risk for insurers. As counter fraud has developed alongside claims and out into all insurer functions, it has only added to that view. This Illinois case is exactly what I was worried would happen. I needed no secret sauce to work it out, only an ability to see the significance of developments and join their various dots together.
Claims people now need to take a fresh look at the developments that have brought this Illinois case about and do some serious rethinking of what they add up to. Better to do this themselves before someone from their board, investors or regulator forces them to do so.