NAIC’s Model Bulletin on Insurer AI Use Approved

A new model bulletin on the use of Artificial Intelligence was adopted by the members of the National Association of Insurance Commissioners (NAIC) at the 2023 Fall National Meeting. Dubbed, “Model Bulletin on the Use of Artificial Intelligence Systems by Insurers“, the bulletin aims to create consistent regulatory standards for the responsible use of AI in the insurance sector.

The bulletin covers important topics such as accuracy, fairness, bias, discrimination, and data security in relation to AI applications. The model policy initiative was developed by the NAIC Innovation, Cybersecurity, and Technology (H) Committee, led by Maryland Insurance Commissioner Kathleen A. Birrane, with Michael Conway and Doug Ommen as co-vice chairs. In total, the committee represents 15 states.

“This initiative represents a collaborative effort to set clear expectations for state Departments of Insurance regarding the utilization of AI by insurance companies, balancing the potential for innovation with the imperative to address unique risks,” said Commissioner Birrane. “As the insurance sector navigates the complexities of AI, the NAIC’s Model Bulletin on the Use of Artificial Intelligence Systems by Insurers provides a robust foundation to safeguard consumers, promote fairness, and uphold the highest standards of integrity within the industry.”

Neither binding law nor regulation

The NAIC stressed in its announcement that the new NAIC model bulletin is neither a binding law nor regulation, but rather a guidance document for state insurance regulators to ensure that insurers comply with existing laws and regulations when using AI to make or support decisions that affect consumers. The NAIC recommendations are broken down into four main sections that outline the key aspects of AI governance by insurers. It stresses the need for effective governance, risk management policies, and procedures to guarantee fair and accurate outcomes for consumers.

A reminder AI must comply with existing applicable laws and regulations

For example, the bulletin reminds insurance carriers that decisions impacting consumers that are made or supported by advanced analytical and computational technologies, including AI, must comply with all applicable insurance laws and regulations, including unfair trade practices. It also sets forth state insurance regulators’ expectations on how insurers should govern the use of such technologies by or on behalf of the insurer to make or support such decisions, including the creation and implementation of a written AIS Program, commensurate with an assessment of the risk in accordance with the guidelines established by the NAIC’s 2020 Principles of Artificial Intelligence, and to ensure that decisions impacting consumers made or supported by AI are accurate and do not violate unfair trade practice laws or other applicable legal standards.

It also reminds insurers that a state Department of Insurance may request during an investigation or examination.

A six-month review process

The initial draft was presented to the working group on June 29, 2023, and subsequently exposed for public comment periods, allowing for extensive input from industry stakeholders, consumers, and legislators. The process involved two exposure periods, with the first public comment period ending on Sept. 5, 2023, and the second ending on Nov. 6, 2023. The review process also included in-person comments during the 2023 Summer National Meeting in Seattle, WA, and during the 2023 Fall National Meeting in Orlando, FL.

Significant updates were made to the model bulletin based on the feedback received. These updates addressed concerns raised during the review process, including a shift in focus toward outcomes, revisions to key definitions aligned with National Institute for Standards and Technology (NIST) standards, and updates to language on third-party contracting and testing and validation protocols.

Upon publication of the new bulletin, Commissioner Birrane expressed gratitude for the collaborative efforts of the H Committee, drafting groups, and all stakeholders involved noting the completion and adoption of the model bulletin mark a significant step forward in adapting regulatory frameworks to the evolving landscape of AI in the insurance industry.