Regulators split as NAIC group weighs AI rules for insurers

Regulators are in two camps on whether to move forward with a model law governing the use of artificial intelligence by insurance companies.

The Big Data and Artificial Intelligence Working Group met Monday to discuss next steps in the regulation of AI. The National Association of Insurance Commissioners adopted a set of AI “principles” in August 2020, but regulators have been slow to follow up.

A model bulletin on the use of AI was adopted by the NAIC in December 2023. Twenty-four states adopted the bulletin thus far, said Michael Humphreys, Pennsylvania insurance commissioner and chair of the working group.

Meanwhile, the industry use of AI expands at a dramatic pace. Regulators need to do more, argued Michael Conway, Colorado insurance commissioner.

“I think it's vitally important for us to be moving forward with some action ... as it relates to model laws or model regulations in the AI space,” Conway said. “I think if we don't, we will see other regulatory bodies within our states and at the federal level step into that space.”

Colorado is among the first U.S. states to issue legally binding regulations specifically aimed at algorithmic fairness and AI governance in insurance. Effective Nov. 14, 2023, Colorado requires life insurers using external consumer data and information sources [ECDIS] to establish a governance and risk management framework.

Iowa Insurance Commissioner Doug Ommen preached patience on next-step regulation of AI.

“Moving forward right now may be premature, and I don't mean premature in that legal action isn't needed,” he explained. “But frankly, that work we've done with the bulletin is really primarily grounded in the principles of governance, and along with this evaluation tool, really are putting us as regulators in a good place to look at our own industries and better understand what it is that they're doing. Because that's going to be needed to inform our decisions.”

'Move forward'

Consumer advocates were disappointed that the NAIC model bulletin did not include elements of discrimination outlined in the initial AI principles.

Peter Kochenburger is a visiting professor of law at Southern University Law Center and an NAIC consumer liaison. Consumers lack rights in terms of how AI is used in underwriting and claims, he said.

“The premature argument is one that could be made on any work on AI indefinitely, because it's changing so quickly,” Kochenburger added. “I would urge the committee not to stop but to move forward and not to wait for additional information, which could take years and will always be a need.”

Meanwhile, the working group heard an update on an AI model law introduced recently by the National Council of Insurance Legislators. The NCOIL Model Act Regarding Insurers’ Use of Artificial Intelligence is based on legislation that failed to pass the Florida legislature.

The act mandates that any decision to deny a claim or a portion of a claim must be made by a qualified human professional. Before making a decision, the qualified human professional must review the accuracy of any output generated by an AI system or algorithm.

Insurers are required to maintain detailed records of the actions taken by qualified human professionals in the decision-making process.

Regulators hear from industry

The NCOIL AI model came out of the Financial Services & Multi-Lines Issues Committee, chaired by NY Assemblyman Jarett Gandolfo.

“AI is undoubtedly one of the most talked about issues these days, so it is great that the Committee is taking a leading role on how AI should be regulated in the insurance space without impeding innovation and removing the efficiencies that AI can offer,” Gandolfo said in a July news release.

NCOIL is getting pushback from the insurance industry. Several trade associations authored a joint letter to the committee criticizing the AI model.

“We do not believe a one-size-fits-all approach that fails to recognize different AI model types and the different ways in which different lines of insurance utilize AI is the best way forward,” the letter stated. “Developing a model law on the use of AI is premature and would require a more comprehensive and thoughtful discussion and understanding than has been undertaken to date.”

NCOIL plans to resume discussions on the AI model during its annual meeting in November.

© Entire contents copyright 2025 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.