Most experts advise insurers not to expect federal AI guidelines

Most legal and insurance industry experts aren’t expecting federal AI guidelines anytime soon, urging insurers to look to the National Association of Insurance Commissioners Model Bulletin and state regulations and form their own governance frameworks.

While the Biden administration had issued an executive order guiding the ethical use of AI, the Trump administration quickly rescinded the order.

“It’s very wrong to assume that what happened with the federal executive order has anything to do with insurance, because insurance is not regulated at the federal level; it’s regulated on a state-by-state level,” Mike Fitzgerald, insurance industry advisor, SAS, explained.

“I think that carriers shouldn’t be waiting around for federal legislation having to do with AI, and I don’t think that they are. I can’t say that it won’t happen. It probably won’t be specifically about insurance, but it could affect insurance in the same way that the Biden executive order did,” Robert Tomilson, partner, Clark Hill said.

However, Peter Dugas, executive director, Capco, and managing director of the company’s Center of Regulatory Intelligence, believes federal regulation of AI could be introduced in the coming months and could be structured in such a way that would allow businesses to flourish.

“At the federal level, it’s likely going to be more advantageous for insurance companies, meaning President Trump and his team have indicated that they’re going to try to be more business-forward and allow for AI to flourish… But it’s always a challenge industry by industry,” Dugas said.

State-by-state regulation

So far, just a handful of states have introduced specific legislation for AI in insurance. Most others have adopted the NAIC’s model bulletin.

In Tomlinson’s view, however, the bulletin “doesn’t say a lot” but rather provides “loose guidelines” that need a lot of work before it can be considered a model act. Additionally, Fitzgerald said its enforcement remains unclear.

“There hasn’t, to my knowledge, been any fines. So, it’s too early to tell how it will be enforced, but definitely what happened at the federal level does not necessarily at all pertain to the state level,” Fitzgerald said.

Could things change under Trump?

Dugas believes that the Trump administration could introduce a rough AI framework and action plan over the next several months. If that happens, it could revive the U.S. Department of Commerce’s National Institute of Standards and Technology, he said.

“We would expect them to continue that role, but I think, at this time, we’re waiting for the response to what the president proposes as far as an overall framework, at least at the regulatory agencies,” Dugas said.

In a March 4 address to Congress, President Trump announced an immediate freeze on all new federal regulations. However, it is unclear whether AI regulations are part of that freeze.

On February 11, Vice President J.D. Vance strongly disparaged “excessive AI regulation” — which, in Dugas’ view, suggests the administration will focus more on ease of business in a “net-positive” for insurers.

Conflicting guidelines

A lack of federal regulations on AI creates some challenges for the insurance industry at large as different states can take conflicting positions, Dugas pointed out.

“With at least a federal focus under the Biden administration, they would be able to react accordingly since they had a large body of evidence that they could point to, whether it’s the Department of Commerce, NIST (National Institute of Standards and Technology), DOJ, Civil Rights Division and others, but issued guidance to the industry. At the federal level, specifically around AI, that helped them to kind of understand the overall framework,” he said.

In contrast, having to monitor proposed legislation from multiple states can make it challenging to manage risks and understand associated compliance.

At the same time, if federal regulations are introduced now, it could mean companies that have already implemented internal frameworks may have to backtrack.

Insurers advised to tread carefully

Experts generally suggest insurers continue to focus on state-level regulation for now, while keeping an eye out for federal updates.

“We see a number of states introducing legislation currently regarding AI, everything from model development to deployment. So, at this point, we’re primarily focused at the state level, making sure our clients are able to respond to any sort of regulatory requirements or legal requirements at that level,” Dugas said.

Additionally, he urged insurers to update their governance framework, emphasizing this is a crucial step that should not be skipped.

“What we’ve seen in banking, insurance and many industries is that they’re jumping to proof of concepts without necessarily the appropriate governance structure, because they may face pressure from the board of directors, their executives or even their business lines. But the challenge there is you really need to start with the governance first,” he said.

SAS is a software development company founded in 1976 and based out of Cary, NC. With over 400 offices around the world, SAS provides business analytics and AI solutions to clients.

Capco, a Wipro company founded in 1998 and based in London, UK, is a technology and management consultancy firm that specializes in the financial services industry. It has more than 1,500 consultants across over 30 offices around the world.

Clark Hill is an international law firm founded in 1890. It has more than 25 offices across the United States, Ireland and Mexico.

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