The Academy Is Engaged as AI Use in Insurance Increases

By Will Behnke and Matthew Williams, Public Policy Project Managers 

In the broader landscape of policy work, artificial intelligence (AI) plays an increasingly critical role in regulatory compliance, risk assessment, and decision making. Policymakers and regulators are leveraging AI to analyze vast amounts of industry data, identify trends, and enforce compliance with consumer protection laws. AI-driven tools can streamline regulatory reporting, enhance fraud detection, and help ensure that insurance products are equitably distributed across different demographic groups.  

The NAIC Model Bulletin on the Use of Artificial Intelligence Systems by Insurers establishes guidance for insurers using AI in their operations, ensuring compliance with legal and regulatory standards at the state level. Adopted in December 2023, the bulletin emphasizes transparency, accountability, and fairness, requiring insurers to implement written AI governance programs. These programs must address risk management, data security, and bias prevention, ensuring AI does not produce discriminatory or unfair outcomes in underwriting, claims processing, or pricing. 

With AI transforming the insurance industry, the NAIC drafted the bulletin to ensure compliance with applicable laws and regulations, while emphasizing the regulatory concern that the use of AI not result in inaccurate, arbitrary, or unfairly discriminatory outcomes. Insurers must require a program to govern the use of AI systems, including risk management and internal control that is written and documented. The bulletin also advises insurers of the type of information and documentation that may be requested during an investigation or examination of any insurer’s use of such technologies and AI systems. 

As of March 3, the NAIC Model Bulletin has been adopted by 23 states, signaling a growing recognition of AI’s role in insurance policy and regulation. Its implementation varies by jurisdiction, with some states issuing complementary regulations or additional requirements. States like California, Colorado, and New York have introduced their own AI-related insurance regulations, reinforcing the NAIC’s efforts. 

The Academy’s Engagement 

The Academy’s Data Science and Analytics Committee (DSAC) is considered to be a valued resource for policymakers and other stakeholders regarding the use of AI in insurance. They have published educational policy papers and hosted public webinars as part of their Additional Considerations in Data Science series. 

Academy volunteers have also engaged with the NAIC and the Federal Insurance Office (FIO), participating in each organization’s ongoing discussions related to governance and use of AI in insurance. Last August, DSAC submitted comments to FIO on their request for information (RFI) on Uses, Opportunities, and Risks of Artificial Intelligence in the Financial Services Sector, as well as attended a roundtable discussion hosted by FIO on AI use in insurance.  

The Risk Management and Financial Reporting Council submitted comments to the NAIC on the exposure draft of the AI Model Bulletin in 2023. Since then, the council continues to collaborate with the other practice areas, responding to several state regulators as they debated and adopted the bulletin or evaluated legislative proposals.  

Simultaneously, the Casualty Practice Council also continues to be an active voice, as the use of AI in practice has been quickly adopted within the property/casualty insurance space. On the professionalism side, the Academy recently published profession-wide perspective on the use of AI in the Actuarial Professionalism Considerations for Generative AI discussion paper.  

And the Health Practice Council is closely monitoring developments in AI, focusing on its potential impact on issues such as disease diagnosis, health plan benefit design, health plan eligibility, insurance pre-authorization, and health insurance payment approval or denial.  

One area of possible concern, which was highlighted in a recent Contingencies article, involves data security. While AI in medicine presents a unique opportunity to enhance both cost-efficiency and health care quality by eliminating inefficiencies and providing preventive measures, cybersecurity challenges must be addressed. 

AI is a quickly evolving technology whose impact will continue to grow in the insurance industry. As this happens, balancing legal and ethical considerations will challenge industry leaders to exercise proper and evolving oversight, which is gaining definition through NAIC modeling and state regulations. 

However, it is equally important to avoid any inadvertent cooling of innovation due to potential regulatory overreach. It’s a delicate balance that requires active engagement from practitioners, regulators, and other stakeholders in both the insurance and technology sectors.  That engagement will include continued, robust engagement by the U.S. actuarial profession through the Academy.