b'Technology | Insurtech| Regulatory DevelopmentsWe see the imbalance of regulatory risk tolerance mostInsurtech Regulatory Developmentsoften where market conduct related issues are identi- Despite the insurance industrys continued invest-fied at the insurtech. Such issues often includement in insurtech in 2020, the COVID-19 pandemic engaging in licensable activity without a license,posed particular challenges for state insurance offering rebates or inducements, non-compliantregulators. Consumer dissatisfaction, whether compensation arrangements with partners, tie-in orexpressed or simply feared, caused regulators to force-placed sales, non-compliant white labeling/ issue varying degrees of guidance and mandates. co-branding arrangements and non-compliant market- Regulators that historically would have balked at ing practices. While the insurtech may have flownmid-term premium rebates encouraged, and even under the radar for years without regulatory scrutiny,ordered, return of premium on insurance products when the incumbents diligence reveals these types ofwhose risk profile changed dramatically due to the issues, the incumbent rarely has the appetite topandemic. Regulators embraced technology and continue the deal with those practices remaining indemonstrated a willingness to reconsider long place. This is particularly true where the incumbent isstanding positions when faced with pressing need, an insurance company which is legally responsible forincluding mandating forbearances related to cancel-its agents behavior and remains legally responsible forlation for nonpayment of premium, easing the rules meeting statutory and regulatory obligations, regard- around telemedicine and easing the burden of less of whether it outsources operations. paper filings with the state.Large insurtech M&A activity was limited in 2020.At the state and NAIC level, regulators further Many of the leading insurtechs had ready access toembraced collaboration with the industry. For exam-capital through both public and private markets andple, New Yorks Department of Financial Services so had options to grow their business without relyinglaunched DFS FastForward in June 2020, expanding solely on a larger strategic partner. Some insurtechson its existing insurtech support program (Project went one step further, such as Hippo and Buckle, byWhitehall) to support innovators seeking to deliver deciding to become a full stack insurers themselvesnew solutions in financial services, fintech, insurtech by acquiring insurance companies. In light of theand healthtech during COVID-19. Vermont launched a challenges of COVID-19 and high valuations, manyregulatory sandbox in January 2020, under which incumbent insurance players may not have beencompanies can seek waivers of certain statutory/ready to make a risky acquisition. However, weregulatory requirements for a limited period while anticipate from the high level of collaboration amongpiloting a program or product in Vermont.insurtechs and incumbent insurance players that we are already seeing and the need to own technologyAt the NAIC level, on August 14, 2020, the NAIC to remain relevant in the new digital insuranceExecutive Committee/Plenary unanimously adopted environment, that insurtech M&A will accelerate asguiding principles on artificial intelligence (AI). The the challenges of COVID-19 start to dissipate.NAICs Principles on Artificial Intelligence were devel-oped by the NAICs AI Working Group, a working group established by the NAICs Technology and Innovation Task Force. The AI Working Group studied the use of AI in the insurance sector, its impact on consumer protection and privacy, its interplay within the state-based regulatory framework, as well as solicited comments from key industry stakeholders. MAYER BROWN 95'