New Jersey bill would ban use of AI in denying auto insurance claims

A New Jersey bill would prohibit using AI to deny auto, homeowners, and flood insurance claims. 

The bill, AB 5494, was introduced by Rep. Christopher Tully (D-District 38) on Sept. 14. It has been referred to the Assembly Science, Innovation and Technology Committee. 

Any insurance company that violates the act would be subject to a penalty of up to $5,000 for each violation, according to the bill. It would be effective immediately if passed. 

The Assembly Science, Innovation and Technology Committee advanced multiple AI bills filed by Tully, chairman of the committee, in March.

“As generative AI becomes more commonplace, it’s more important than ever to have safeguards in place to protect New Jerseyans from being duped or deceived,” Tully said in March. “The bills we advanced focus on deceptive advertising, disclosure that a user is not interacting with a human, and creating common sense policies. All with the goal of protecting everyday New Jerseyans as we move further into a digital future.”

None of the bills advanced in March focused on insurance. 

Companion bills filed in Florida that would’ve created parameters on artificial intelligence in insurance claims handling and required mandatory human reviews of claim denials died in committee in April. 

While not specifically focused on AI, the Washington Insurance Department recently adopted a new rule that states reasonable investigation of an insurance claim may not rely solely on database use, including but not limited to, estimating software and benchmarks gathered from one or multiple databases. 

The National Association of Insurance Commissioners (NAIC) rolled out an AI Evaluation Tool pilot program in April to help regulators understand how insurers use AI in 12 states.  

The NAIC Big Data and Artificial Intelligence Workgroup plans to work on multiple AI projects this year. 

This includes researching the use of big data and AI in the business of insurance and monitoring state, federal, and international AI activities, including updates to the regulatory framework for AI oversight. 

NAIC says it will also support adoption of the Model Bulletin on the Use of AI systems by Insurers, which 25 states had adopted as of March 3.

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