NCOIL resolution encourages state-level regulation of AI use in insurance

The National Council of Insurance Legislators (NCOIL) is considering a resolution that discourages the federal regulation of artificial intelligence in insurance and leaves it to each state.

A Feb. 19 draft resolution was discussed last week by the Joint State-Federal Relations & International Insurance Issues Committee, while action on a model AI act was paused. Committee Chair and New York Asm. Erik Dilan (D-District 54) is the sponsor of the resolution.

The resolution says that the state-based system of insurance regulation under the McCarran-Ferguson Act “has consistently adapted to advances in technology throughout the years in ways that are efficient and protective of consumers and the insurance marketplace alike.”

“Artificial intelligence has increasingly been deployed by insurers in areas such as sales, marketing, underwriting, rating, claims handling, fraud detection, customer engagement, and customer service,” the resolution states. “The use of artificial intelligence in insurance presents both opportunities for great efficiency and innovation, and risks relating to things such as opacity, data governance, and overall consumer protections.”

It adds that there has been a “concerning trend” at the federal level to wrongly curtail state legislators’ ability to develop policy surrounding artificial intelligence and insurance.” It notes a 10-year moratorium on state legislative and regulatory authority over AI intelligence that Congress has proposed, and the recently signed, “constitutionally questionable” Executive Order that “aims to preempt state legislation and regulation of artificial intelligence.”

“NCOIL believes that it is vital that state legislators have the ability to develop policy and laws that protect their constituents, many of whom have been steadfast in asking for consumer safeguards against the current unknowns surrounding artificial intelligence,” the resolution states.

Dilan noted last week that he introduced an NCOIL Model Act on insurers’ use of AI in the financial services and multi-lines committee.

“I still support that model and strongly believe in the concept of ensuring that there is a human involved in the insurance process, particularly when we’re talking about claims and denials,” he said last week. “But throughout our discussions, it’s become clear to me, and I believe others, that it would be very difficult to get the consensus necessary to successfully adopt that model.

“I recognize that requiring something so new and the insurance process causes a lot of people some pause, and understandably so. But at this time, I think it’s best to pause on the development of that model and see how the legislative landscape throughout the states evolve before going any further. I still want to discuss AI at NCOIL and hope that it will be a topic of major conversation on meeting agendas.”

If passed by NCOIL, the resolution would encourage states to:

• • “Take appropriate steps, which may include the enactment of legislation, to protect consumers while not hindering innovation and impeding the benefits that artificial intelligence can offer, and to ensure proper legislative oversight of its regulators in the realm of insurance;
  • “Legislate and regulate insurer use of artificial intelligence in a principles-based manner that promotes innovation, transparency, accountability, data integrity, fair discrimination, and consumer protections consistent; and
  • “Coordinate and harmonize legislative, regulatory, and educational efforts surrounding artificial intelligence and insurance to promote consistency while preserving state flexibility to address local market conditions.”

The committee took no vote on the resolution; however, that is expected to occur in April.

Dilan:

“NCOIL has pushed back on both of these federal actions and I think this resolution is an important next step in that process.”

New York Asm. Jared Gondalfo (R-District 7), and NCOIL Financial Services and Multi-Lines Issues Committee chair, agreed with Dilan.

“I think this is the right direction for the committee to take at this time, particularly given the unknown surrounding AI and the rapidly changing nature,” he said. “It’s incumbent that our organization continues to discuss AI and try to learn as much as we can, especially, as I said earlier, with how quickly this sector is evolving. A lot of us are dealing with this in our home state legislatures.”

Gondalfo noted that New York recently passed a chapter amendment to its AI legislation.

Committee member Utah Rep. Jim Dunnigan (R-District 36) also agreed with Dilan, stating a bill in his state to promote state-level AI regulation didn’t survive this year’s legislative session that just ended.

“I think the states are the laboratories, and we need to figure out what’s best for our state,” he said. “Unfortunately, that bill did not proceed, so I appreciate you doing the resolution.”

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