Introduction
Recent regulatory developments in Colorado and New York highlight a growing focus on the use of artificial intelligence (AI) in the insurance industry. These initiatives aim to address potential biases and ensure fair practices, diverging from existing models and setting new precedents for governance and oversight.
Description
Regulatory activity concerning insurers’ use of AI has emerged in Colorado and New York [1], diverging from the Model Bulletin [1]. Colorado’s Division of Insurance introduced regulations in late 2023 [1], specifically targeting life insurers and encompassing all phases of the insurance life cycle [1]. In 2024 [1], stakeholder meetings led to draft regulations focusing on governance and risk management for private passenger auto insurers and health insurers [1]. Proposed amendments were released in December 2024 to enhance requirements for life insurers and extend regulations to other insurance sectors [1]. The Colorado Division is also developing regulations for quantitative testing of algorithms and predictive models to prevent unfair discrimination based on race or ethnicity [1], which has attracted significant scrutiny [1].
In July 2024 [1], New York’s Department of Financial Services adopted Circular Letter 2024-7 [1], which [1], while aligned with some principles of the Model Bulletin [1], is more narrowly focused [1]. This letter addresses the use of external consumer data and AI systems in underwriting and pricing [1], urging insurers to apply its guidance broadly across their practices [1]. Insurers are required to oversee third-party vendors and are accountable for the outcomes of their use [1].
In a significant development, Colorado is advancing its first law aimed at curbing discrimination through AI systems [2], set to take effect in 2026 [2]. Advocacy groups are pushing for robust implementation [2], emphasizing the need for clear definitions of AI systems and empowering the Colorado Attorney General to issue interpretative rules [2]. This law seeks to regulate AI’s role in critical decision-making across various sectors [2], including insurance, with a focus on transparency and enforcement [2]. A task force will provide recommendations for the law’s implementation [2], and additional legislation is anticipated in the upcoming session [2]. Advocates are particularly concerned about ensuring that consumers are adequately informed when AI is used in decision-making processes [2], pushing for detailed disclosures to enhance understanding [2]. There is also a call to include a private right of action [2], allowing individuals to sue for misuse of AI tools [2]. The law’s sponsors acknowledge the need for balance between regulation and innovation [2], with ongoing discussions about the definitions and scope of AI systems covered by the law [2].
Regulatory oversight is expected to intensify regarding insurers’ use of third-party vendors [1], as the NAIC Third-Party Data and Models Task Force works on a framework for regulatory oversight [1]. Increased scrutiny will also be applied to insurance company filings related to new technologies [1], including AI and predictive models [1]. Regulators are exploring effective ways to manage the regulation of AI in the insurance sector [1], considering their limited resources [1]. Additionally, class action litigation is anticipated to rise in response to the use of AI and technological innovations that may lead to allegations of unfair discrimination or bias against consumers [1].
Conclusion
The regulatory initiatives in Colorado and New York signify a pivotal shift towards more stringent oversight of AI in the insurance industry. These efforts are likely to influence broader regulatory trends, emphasizing transparency, accountability [1], and consumer protection. As these regulations evolve, they will shape the future landscape of AI governance, balancing innovation with ethical considerations and potentially setting benchmarks for other jurisdictions to follow.
References
[1] https://www.jdsupra.com/legalnews/artificial-intelligence-state-insurance-8790894/
[2] https://www.cpr.org/2024/12/10/colorado-refines-ai-discrimination-law/
