AI is booming, and this may lead to a new wave of AI regulation. For insurance companies trying to refine their AI strategy, the possibility of new regulations can be an unwanted complication. However, even though there is some uncertainty regarding the exact shape that future AI regulation will take, enough is known to give insurers an idea of how to prepare.

Review the NAIC Guidelines

The NAIC has released a Model Bulletin with expectations regarding how insurance companies should use AI. This bulletin was adopted by the NAIC in December 2023. Since then, many state regulators are adopting the NAIC guidelines.

According to NAIC, 11 states have adopted the NAIC guidelines as of April 22, 2024. Alaska was the first state to do so, followed by Connecticut, Illinois, Kentucky, Maryland, Nevada, New Hampshire, Pennsylvania, Rhode Island, Vermont and Washington. Four other states – California, Colorado, New York and Texas – have insurance-specific regulations or guidelines that predate the NAIC bulletin.

Other states may follow suit, so even insurers that only operate in states that don’t have AI regulations on books should be paying attention.

Review the Executive Order on AI and Adopt Ethical Usage

Although it is not specific to the insurance industry, the Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence provides additional insights into the future shape of AI regulations.

Issued on October 30, 2023, the executive order lays out key principles for the use and development of AI, including that it must be safe and secure. The executive order also focuses on a dedication to advancing equity and civil rights, the development of AI that includes a commitment to supporting American workers, and the promotion of responsible innovation, competition and collaborations that will let the U.S. lead in AI.

Property Casualty 360 advises that ethical AI usage may help insurers stay ahead of regulations, with the use of unbiased data and transparency about AI adoption being key elements of an ethical strategy.

Choose Your Vendors Wisely

According to Think Advisor, state insurance regulators have said that life insurance and annuity companies need to ensure that the AI system they use complies with applicable insurance laws and regulations – even if the AI systems are managed by a vendor.

Although the Think Advisor article is about life insurers, property and casualty insurers should take note. The NAIC guidelines adopted by many states say that insurers need to practice due diligence when using third parties for data and AI, and they also need contracts, audits and documentation to support acceptable usage.

Keep a Human in the Loop

According to CBS News, both United Healthcare and Humana are facing lawsuits over the alleged use of AI to wrongfully deny claims. A spokesperson for Humana said that the company keeps a human in the loop, but the litigation claims that both United Healthcare and Humana made coverage decisions that were based on the AI.

These lawsuits are ongoing, so it’s too early to say whether these allegations have merit. However, the takeaway for insurers is clear. When AI is making key decisions, such as whether to approve an insurance application or claim, a human should stay in the loop and review difficult cases, particularly when the AI rejects an application or claim.

Don’t Wait by the Sidelines

It may take a while to iron out AI regulations. In the meantime, technology will continue to race ahead. Many insurers are diving into AI and reaping the benefits already, and these are the insurers that are poised to seize market share. Of course, the regulatory issues should not be ignored. It is possible to embrace AI and compete strategically while being mindful of the regulatory landscape.