Introduction
The insurance industry is increasingly adopting artificial intelligence (AI) technologies, necessitating a robust governance framework to guide regulators [4], insurers [1] [2] [3] [4], and consumers [4]. The National Association of Insurance Commissioners (NAIC) is at the forefront of this effort [4], working to balance consumer protection with innovation through comprehensive regulatory measures.
Description
The insurance industry is increasingly integrating AI technologies [4], necessitating a governance framework to guide regulators [4], insurers [1] [2] [3] [4], and consumers [4]. The National Association of Insurance Commissioners (NAIC) is actively working on this by releasing survey results on AI usage across various insurance lines and forming a Third-Party Data and Models Task Force to address the implications of third-party AI systems and data [4].
NAIC aims to create a comprehensive regulatory framework that balances consumer protection with innovation [4]. AI is transforming core insurance operations [4], including underwriting [4], pricing [4], and claims handling [4], but it also introduces risks such as inaccuracies in AI-generated information and potential algorithmic biases [4]. There are concerns regarding accountability in AI decision-making and the prioritization of cost savings over consumer interests [4].
The NAIC’s Big Data and Artificial Intelligence Working Group has been studying AI’s development in the insurance sector since 2019 [4], with published survey results for auto [4], home [4], and life insurers [4], and plans for health insurance results in 2025 [4]. The Model Bulletin on the Use of Artificial Intelligence by Insurance Companies [3] [4], adopted in December 2023 [4], outlines principles for responsible AI use and serves as a foundation for future regulations [4]. By 2024, 22 jurisdictions, including Delaware, had adopted this Model Bulletin [4], which emphasizes the authority of state insurance departments to request and obtain information pertinent to AI systems during market conduct investigations and examinations [3].
In February 2024, New Jersey’s Banking and Insurance Commissioner issued Bulletin 25-03 concerning the use of artificial intelligence systems in the insurance sector [1], marking the state’s adoption of regulations based on the NAIC Model Act [1]. This made New Jersey the 23rd state to implement such guidelines [1], applying to all insurers authorized or admitted in the state [1].
In alignment with the NAIC Model Bulletin [3], the Delaware Department of Insurance has issued a bulletin mandating that insurers adhere to all insurance laws and regulations [2], including those applicable to the use of Artificial Intelligence Systems (AIS) [2]. Insurers are required to establish a written AIS Program that ensures the responsible use of AI systems [2], incorporating governance, risk management controls [2], audit functions [2], and integration with the Enterprise Risk Management System throughout the AI system’s life cycle.
Insurers often rely on third-party data and models [4], which are not directly regulated by state insurance departments [4], raising concerns about the reliability of these external sources [4]. The Third-Party Data and Models Task Force [4], formed in May 2024 [4], is tasked with developing a regulatory framework for these third-party services [4], emphasizing that insurers must retain responsibility for the data and models they use [4].
In 2025 [4], regulators will continue to seek a balance between consumer protection and technological advancement [4], focusing on risk identification and the development of rules to enhance AI governance [4]. Insurers are expected to improve their AI governance and risk management practices [4], ensuring compliance with data privacy laws and implementing internal controls to mitigate risks associated with third-party data [4]. The evolving regulatory landscape will drive insurers to adopt transparent and accountable AI technologies [4], shaping the insurtech environment in the coming years [4].
Conclusion
The integration of AI in the insurance industry is reshaping traditional operations, offering both opportunities and challenges. The NAIC’s proactive approach in establishing a regulatory framework aims to ensure that AI technologies are used responsibly, safeguarding consumer interests while fostering innovation. As the regulatory landscape evolves, insurers will need to enhance their governance and risk management practices, ultimately leading to a more transparent and accountable insurtech environment.
References
[1] https://www.jdsupra.com/legalnews/new-jersey-adopts-bulletin-on-ai-use-in-7761083/
[2] https://www.propertycasualty360.com/fcs/2025/02/07/delaware-adopts-naics-use-of-ai-systems-by-insurers/
[3] https://www.jdsupra.com/legalnews/delaware-insurance-commissioner-navarro-2560997/
[4] https://www.jdsupra.com/legalnews/ai-in-the-insurance-industry-balancing-7506385/
