State AI legislation is rapidly evolving, and its impact on the insurance industry is becoming increasingly significant.
Marla H. Kanemitsu and Manu Sharma at Tusk Venture Partners conducted an in-depth analysis of 190 proposed state bills that touch on AI and insurance and identified four main categories:
1. AI Discrimination
- Introduced in about a dozen states
- Address the use of AI in making high-stakes, “consequential” decisions that could result in discriminatory outcomes
- Often require audits or impact assessments of AI systems prior to production
- Colorado has passed such legislation, Connecticut came close, and California will likely follow suit
- Illinois and Virginia are also considering similar bills
2. Utilization Review
- Focus on the process by which insurers determine coverage for medical care
- Generally require disclosures about the use of AI in the utilization review process
- May restrict the use of AI by health insurers for that purpose
- Some bills would require insurers to provide their algorithms and data sets to State Departments of Insurance for compliance assessments
- None passed this year, but expected to be reintroduced in future sessions
3. Study Committees
- AI-focused study committees aim to understand AI better
- Indicate growing legislative interest in proactive oversight of AI systems
- Likely to study first movers like Colorado and New York as potential models
4. Miscellaneous AI Restrictions
- Include various other restrictions on AI use in insurance applications
- Such as in underwriting or claims management
Additional Developments
The National Association of Insurance Commissioners (NAIC) has created a Task Force on Third Party Models and Data, chaired by Colorado insurance commissioner, Michael Conway. Given Colorado’s proactive and highly prescriptive stance on AI regulation, this chairmanship is particularly significant. The Task Force aims to develop a framework to help states ensure that third-party data and models used to make decisions about consumers in insurance are fair.
Key Takeaways
State legislators are under significant pressure to protect the public from potential AI abuses. This will likely result in:
- More AI-driven decisions being scrutinized for discrimination
- More companies facing nondiscrimination obligations, not just in insurance, but in other domains too
