Colorado gears up to add AI regulations for health insurance

The Colorado Division of Insurance has opened a public commentary period for its proposal to introduce regulation to govern the use of AI in health insurance, as it investigates whether existing legislation can be applied.

AI regulation in the insurance industry is a hot-button topic in the United States, while federal legislation remains to be put in place — although President Biden has issued an Executive Order on its safe use.

In November, Colorado enacted Regulation 10-1-1, which applies to life insurance carriers in the state. Around that time, legislators also began looking at whether the regulation could apply to private passenger auto insurance.

Now, the Division of Insurance is looking at how regulations can apply in the health insurance space and welcoming presentations and feedback from stakeholders and the public.

“We expect the initial regulation regarding health insurance to be focused on governance and risk management, and to mirror 10-1-1, and that's similar to what we indicated with private passenger auto,” Jason Lapham, deputy commissioner, property and casualty, said.

With this draft legislation, Colorado now has AI regulations being developed for three insurance streams simultaneously: life insurance underwriting, private passenger auto insurance, and health insurance.

While he said the timeline for life insurance regulation could indicate how things will progress with the other two streams, Lapham underscored that timelines are variable and will likely “follow their own trajectories.”

However, he added that Colorado is not likely to introduce further AI regulation until these three streams have been finalized.

“We’re going to put a pause on any other work streams until we work through the things that we've opened up so far,” Lapham said.

Colorado’s adoption of AI regulations

In the absence of formal regulations governing the use of AI in insurance practice across the United States, Colorado has emerged as one of the first states to implement its own.

Senate Bill 21-169, enacted in July 2021, intends to “protect Colorado consumers from insurance practices that use external consumer data and information sources (ECDIS) that result in unfair discrimination” through two regulations.

These regulations will require insurers to:

• Establish and maintain a risk management framework to evaluate whether or not their use of AI results in unfair discrimination
• Provide an assessment to the division of the results of that risk management framework

As of November, initial work on the very first regulation, aimed at life insurance carriers in the state, has been concluded and enacted. For now, work on the second regulation specific to the testing component for life insurance remains in a draft phase.

Regulations for risk framework management specific to private passenger auto insurance are also still in the draft phase and open to stakeholder feedback as of November 2023. Draft regulations for the testing aspect of auto insurance have not yet started.

In a webinar earlier this year, Stephanie O’Neill Macro, of counsel, Locke Lord Chicago, identified Colorado as “leading” regulation of AI in insurance at a time when many other states are relying on the National Association of Insurance Commissioners’ (NAIC) Model Bulletin as a guideline.

“I think that, as you start to see whether it’s the NAIC or other states kind of coming behind us and doing similar things in the AI space, I guess I've taken it as really confirmation that what we've done makes sense,” Michael Conway, insurance commissioner, Colorado Division of Insurance, said. “A lot of what we're seeing from the NAIC or other states really does align very well with where we are on the governance side of things.”

Public feedback and surveys

In the meantime, the Insurance Division is welcoming feedback from stakeholders on all of the draft legislation underway.

“We’re not opposed to revising the rules if we think it's warranted,” Lapham added. “We know this is an ever-evolving space, and we are not treating this as being something that's fixed in stone.”

Lapham also noted that surveys were conducted when the division first began looking at regulation for life insurance, and again when it started the process for private passenger auto insurance.

“Now, we’re moving with a similar survey in the health insurance space. That work has just gotten started,” he said. “Colorado is a part of that work as well, and I'm not going to prognosticate as to when the report will ultimately be issued, but that work is underway in earnest.”

He said Colorado’s efforts in this respect have been “going on in parallel to work that’s happening at the NAIC,” which the state is also taking part in.

“In some ways, this wasn't deliberate, but I think it's going to be helpful while that work is taking place, at least those conversations are taking place, we in Colorado will be diving into health insurance,” he said. “ I think it's going to be complementary in a lot of ways to the work that we're doing here in Colorado.”

Rayne Morgan is a content marketing manager with PolicyAdvisor.com and a freelance journalist and copywriter.

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Rayne Morgan is a journalist, copywriter, and editor with over 10 years' combined experience in digital content and print media. You can reach her at rayne.morgan@innfeedback.com.