State insurance regulators are now looking hard at use of artificial intelligence tools and other high-tech tools at life and annuity issuers' vendors.
A team at the National Association of Insurance Commissioners wants to keep the issuers from using bad analysis without knowing it — or evading responsibility for intentional deception or unfair discrimination by outsourcing the AI work.
The NAIC's Third-Party Data and Models Task Force is developing a framework for the regulatory oversight of the data files, predictive models and related tools that insurers get from outside sources.
Consumer groups and some regulators are asking the task force to develop detailed, relatively rigid rules, to keep wrongdoers from sneaking through loopholes.
Scott Harrison, a co-founder American InsurTech Council, said in a recent interview that the insurers, technology vendors and other companies that sponsor the council want rules that can accommodate rapid changes in markets and tools.
The backdrop: The NAIC — a Kansas City, Missouri-based group for state insurance regulators — created an Innovation, Cybersecurity and Technology Committee in 2021. The NAIC adopted artificial intelligence principles in 2020 and the Innovation Committee's Model Bulletin on the Use of Artificial Intelligence Systems by Insurers in 2023.
The Third-Party Data and Models Task Force, the body working on analytical tech rules for insurers' vendors, is part of the Innovation Committee.
The American InsurTech Council: Scott Harrison, a co-founder of the American InsurTech Council, said the history of his group shows why any strategy for regulating insurers' vendors needs to be flexible enough to accommodate rapid change.
The council itself is about three years old. When it was founded, "big data" and "predictive analytics" were the tools getting the most regulator attention. Now, regulators are thinking more about machine learning and generative AI, Harrison said.
He said he and many others at the council like Connecticut's approach: Connecticut regulates insurers directly and requires the insurers to make sure their vendors are using technology responsibly.
"We think that's a good, commonsense approach," Harrison said. "An insurance company is already a regulated entity."
Insurers have legal teams that are used to dealing with many different compliance regimes, including technology-related technology rules, Harrison said.
Today, he said, the laws that apply to the vendors are mostly states' general business laws and consumer protection laws.
Agents and advisors: At this point, the teams Harrison tracks are focusing mainly on regulating use of AI at insurers and technology firms, not at independent marketing organizations, retail insurance agencies, or other life and annuity distribution entities.
How to get involved: Harrison said the insurtech council tries to give the insurance community help with understanding NAIC and state insurtech regulatory developments by holding regulatory update breakfasts at each NAIC in-person quarterly meeting. The next NAIC quarterly meeting starts March 23 in Indianapolis.
The breakfasts are open to the public. Harrison said he has not noticed many agents, advisors or financial professional group representatives attending, but participants have included lawyers, accountants and actuaries, along with state insurance regulators and people affiliated with the council's sponsors.
Credit: Adam Limbach/Adobe Stock
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