Most experts in the legal and insurance sectors anticipate a delay in federal guidelines for the use of artificial intelligence. They are urging insurance companies to develop their own internal governance frameworks, drawing guidance from the National Association of Insurance Commissioners (NAIC) Model Bulletin and state regulations.
While the Biden administration issued an executive order regarding the ethical use of AI, the previous Trump administration rescinded the order. “It’s not accurate to assume that the federal executive order has implications for insurance, because insurance is regulated at the state level, not the federal level,” explained Mike Fitzgerald, an insurance industry advisor with SAS. “I don’t think insurance carriers should be waiting for federal legislation concerning AI; based on my observations, they aren’t. I can’t guarantee that it won’t happen; however, it might not be specific to insurance, but it might impact insurance in a similar way that the Biden executive order did,” stated Robert Tomilson, a partner at Clark Hill.
However, Peter Dugas, executive director of Capco and managing director of the company’s Center of Regulatory Intelligence, suggests federal AI regulation could arise in the coming months and could be structured in a way that fosters business growth. “Given the inclinations of President Trump and his team to favor business-forward approaches, we could see regulations that allow AI to flourish… But it’s always a challenge industry by industry,” Dugas said.
State-by-State Regulation
Currently, only a handful of states have implemented specific AI legislation for the insurance industry. Most other states have adopted the NAIC’s model bulletin. However, Tomlinson views the bulletin as providing “loose guidelines” that need significant refinement before they can be considered a comprehensive model act. Fitzgerald further noted that the bulletin’s enforcement has been inconsistent. “As far as I know, there have been no fines. The enforcement scope is unclear. What happened at the federal level doesn’t necessarily extend to the state level,” Fitzgerald commented.
Potential Changes Under Trump
Dugas anticipates that the Trump administration may introduce a preliminary AI framework and action plan over the next few months, which could involve revitalizing the U.S. Department of Commerce’s National Institute of Standards and Technology (NIST). “We would expect them to continue that role, but I think, at this time, we’re waiting for the response from the president regarding a broad framework, at least across regulatory agencies,” Dugas said. In a March 4 address to Congress, President Trump announced a moratorium on new federal regulations, although it is unclear whether AI regulations are included.
On February 11, Vice President J.D. Vance expressed strong criticism of “excessive AI regulation.” This suggests, according to Dugas, that the administration will prioritize business convenience, potentially resulting in a “net-positive” outcome for insurers.
Conflicting Guidelines
The absence of federal regulations on AI presents challenges for the insurance sector, as different states may adopt conflicting stances, Dugas pointed out. “Under the Biden administration we had a federal focus and they could react accordingly since they had a large body of evidence that they could point to, whether it’s the Department of Commerce, NIST (National Institute of Standards and Technology), DOJ, Civil Rights Division and others, but issued guidance to the industry. At the federal level, specifically around AI, that helped them to kind of understand the overall framework,” he said.
Managing risks and ensuring compliance has been more challenging because of monitoring proposed legislation from different states. If federal regulations are implemented now, companies that have already launched internal frameworks might need to adjust their strategies.
Insurers Advised to Tread Carefully
Experts generally recommend that insurers remain focused on state-level regulation for now while also staying updated on any federal developments. “A number of states are currently introducing legislation regarding AI, spanning model development to deployment. Our primary focus is on the state level at this point, making sure our clients can meet any regulatory or legal requirements,” Dugas said. He also urged insurers to update their governance frameworks, highlighting that this is a crucial step. “We have seen in banking, insurance, and many other industries companies jumping to proof of concepts without the right governance structure, maybe because of pressure from executive teams or the board. But a proper governance structure must come first,” he said.
Rayne Morgan, the author of this article, has over a decade of experience in digital content.
