Members of the National Association of Insurance Commissioners (NAIC) voted to adopt the Model Bulletin on the Use of Algorithms, Predictive Models, and Artificial Intelligence (AI) Systems by Insurers during its 2023 Fall National Meeting.

“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 Maryland Insurance Commissioner Kathleen A. Birrane, chair of the NAIC Innovation, Cybersecurity, and Technology (H) Committee. “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.”

The H Committee, comprised of representatives from 15 states, drafted the bulletin with the goal of establishing comprehensive regulatory standards to ensure the responsible deployment of AI in the insurance industry. The bulletin addresses critical issues related to the usage of AI, such as potential inaccuracies, unfair biases leading to discrimination and data vulnerabilities.

While not a model law or regulation, the AI model bulletin serves as a guiding document, fostering uniformity among state insurance regulators regarding expectations for insurance carriers deploying AI. The bulletin comprises four key sections, each addressing crucial aspects of AI usage by insurers. It emphasizes the importance of responsible governance, risk management policies, and procedures to ensure fair and accurate outcomes for consumers.

The bulletin sets forth regulators’ expectations on how insurers should govern the use of such technologies to make or support decisions that impact consumers, 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 the decisions made or supported by AI are accurate and do not violate unfair trade practice laws or other applicable legal standards. The bulletin also advises insurers of documentation that a state department of insurance may request during an investigation or examination.

The initial draft was presented to the working group in June and subsequently exposed for public comment periods, allowing for extensive input from industry stakeholders, consumers and legislators. The review process also included in-person comments during the 2023 Summer National Meeting in Seattle and during the 2023 Fall National Meeting in Orlando, Fla.

Significant updates were made to the model bulletin based on the feedback received, 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.