AI regulation proves challenging for state insurance officials

insurance regulators added a principle encouraging industry participants to take proactive steps to avoid proxy discrimination against protected classes when using AI platforms.

There was hope that the NAIC would use the guiding principles as a starting point for strong AI regulation, several speakers said during a recent Innovation, Cybersecurity, and Technology Committee meeting.

Peter Kochenburger is a visiting professor of law at Southern University Law Center. He described the AI principles as “a far-reaching and, frankly, exciting document” meant to lay out the framework for how further NAIC work would proceed in various committees. That promise is “largely unfulfilled” by the new model bulletin, he added.

by John Hilton

State regulators know that artificial intelligence brings significant potential impacts to the insurance world. But coming up with appropriate regulations for AI is proving to be a lengthy process.

Regulators tiptoed closer to real AI regulation with the July release of the Model Bulletin on the Use of Algorithms, Predictive Models, and Artificial Intelligence Systems by Insurers.

But that effort is seemingly not making anyone happy.

The bulletin is not a model law or a regulation. It is intended to “guide insurers to employ AI consistent with existing market conduct, corporate governance, and unfair and deceptive trade practice laws,” the law firm Locke Lord explained.

Meanwhile, the National Association of Insurance Commissioners met last week in Seattle. AI featured prominently in several different working group discussions. Regulators released a new batch of AI survey data, with 70% of the reporting homeowners’ insurers indicating that they “currently use, plan to use, or plan to explore using” AI.

Insurers are intrigued with the many uses of AI in all aspects of operations. But regulators are struggling with how to regulate the sweeping technology.

AI principles adopted early

In August 2020, the NAIC adopted guiding principles on artificial intelligence.

The NAIC guiding principles are based on the Organization for Economic Co-operation and Development’s AI principles, which have been adopted by 42 countries, including the United States. After robust discussions, state

“The document does, frankly, very little other than to flesh out and specify what is already in the principles and misses opportunities to start to set not simply expectations but guidance and documentation of what insurers need to do,” Kochenburger said.

He further criticized the document for soft language in important areas. Consumer advocates are concerned by the potential for rampant “proxy discrimination” with AI-fueled use of big data. Read

Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on X @INNJohnH.