In an industry where the pace of regulation is often described with references to snails and turtles, the NAIC’s adoption of a model bulletin on carriers’ use of Artificial Intelligence Systems resembles the blur of a bullet train.

Executive Summary

Bruce Baty, a lawyer with nearly 40 years of experience assisting insurers in regulatory matters, gave an overview of a model bulletin adopted by the NAIC late last year, setting forth regulators' expectations about how carriers will govern the development, use and acquisition of AI technologies.

At a high level, what regulators rushed to accomplish in crafting the bulletin was to deliver a reminder that laws about unfair trade practices, unfair discrimination, corporate governance disclosure, P/C rating laws and market conduct surveillance laws apply to the use of AI systems as well, and to convey expectations about written documentation regulators expect carriers to produce during regular conduct exams regarding AI governance, risk management and scrutiny of third-party providers of AI systems.

Michael (Fitz) Fitzgerald, Insurance Industry Advisor for SAS Institute Inc., served as guest editor for this article and others featured in CM's Q1-2024 magazine, "Leading the AI-Powered Insurer."

“This was overnight, comparatively speaking,” Bruce Baty, a partner with the law firm Norton Rose Fulbright U.S. LLP, said during a January interview with Carrier Management Guest Editor Michael (Fitz) Fitzgerald, describing the development and adoption of a “Model Bulletin on the Use of Algorithms, Predictive Models, and Artificial Intelligence (AI) Systems by Insurers” by the National Association of Insurance Commissioners.

The bulletin, adopted at the Fall National Meeting of the NAIC in early December last year, outlines guiding principles for governance, risk management and internal controls for AI systems, with an entire section delineating what insurers should include in an “AIS Program”—a written program that regulators “expect” insurers to develop in order to document their “responsible use of AI Systems that make or support decisions related to regulated insurance practices.”

A final section addresses what might happen going forward as regulators carry out their oversight responsibilities during market conduct exams or other investigations to address AI usage:

“[A]n insurer can expect to be asked about its development, deployment, and use of AI Systems, or any specific Predictive Model, AI System or application and its outcomes (including Adverse Consumer Outcomes) from the use of those AI Systems, as well as any other information or documentation deemed relevant by the Department.”

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