Navigating the Complex Landscape of Insurance Regulation and AI Implementation


The following is a recap of PIMA's 2024 Spring Legislative & Regulatory Digital Forum. It is important to note that the NAIC draft documents are always subject to input and change. For the latest updates and materials, visit NAIC's website.


For nearly 50 years, PIMA has played a part in the evolution of the insurance industry. However, keeping up with all the changes happening today can be challenging. That's why PIMA regularly taps into the knowledge of seasoned industry professionals like Miguel Romero and Scott Sobel from the National Association of Insurance Commissioners (NAIC).   


In a discussion moderated by PIMA Board Member Sean Cox, Romero — director of P&C Regulatory Services — and Sobel — AI Policy Advisor — shared their insights with the PIMA Community. The event focused on four major areas affecting the broader insurance sector: artificial intelligence (AI), insurance regulation initiatives regarding group insurance, diversity, equity, and inclusion (DEI) considerations, and insurance misrepresentations.   


AI Implementation in Insurance  


AI has affected every part of society and business, including insurance. That's why future-forward insurance leaders put AI adoption principles into play in 2020. The principles were designed to guide AI implementation in insurance and ground the pragmatic adoption of AI by state insurance regulators, insurance companies, and other stakeholders.  


These principles, which cover fair and ethical AI use, accountability, compliance, transparency, and security measures, have become foundational pillars for the NAIC to navigate the increasing complexity of AI and machine learning (ML). Yet, there's still work to be done to mitigate all the possible risks related to AI products. One way the NAIC is chipping away at those risks is by discovering how AI impacts people throughout the insurance realm.  


Not long ago, the NAIC sent out three extensive surveys focused on the use of AI and ML in personal, auto, homeowners, and life insurance. The results were enlightening. For example, AI use varied greatly by lines of insurance. While 88% of personal auto insurance companies said they used or planned to use AI, only 70% of homeowners' companies agreed. That number dropped to 58% for life insurance companies. These findings show how varied AI use is in insurance. It also explains why governance program development isn't consistent across all insurance providers or types. Other survey outcomes were just as compelling and will be available through the NAIC for review.  


Another NAIC initiative related to AI is the organization's principles-based Bulletin, adopted in 2023. The Bulletin establishes guidelines and expectations to ensure the responsible development and use of AI by insurance companies. Its purpose is to remind insurance companies of their responsibility to comply with insurance laws or regulations, to set forth the department's expectations on how insurers will govern AI use, and to advise insurance companies of the information that may be requested during an investigation or examination.   


So far, 11 states have adopted the Bulletin into their own AI initiatives. This shows its relevance and potential leverage to ensure that insurance is making the most of AI and staying ahead of AI issues across disciplines to construct a flexible framework that can be helpful in the coming years.  


Insurance Regulation Updates Affecting Group Insurance  


Group insurance has been the topic of many discussions at all levels of government. But competing rules have sometimes made it unclear how to proceed if you're involved in affinity market insurance.  


Take the states' roles in defining association health plans (AHPs). A Trump Administration rule gave states oversight of AHPs within the concept of multiple employer welfare arrangements (MEWAs). However, the rule was overturned.   


For this reason, NAIC supports the updated AHP legislation introduced by U.S. Senator Mike Braun (R-IN). His proposed bill, S.3167 - MEWA Act, modifies the House-passed CHOICE Act, retains AHPs as MEWAs, and preserves state rating rules, among other considerations. The hope among those in the NAIC is that S.3167 will be implemented, giving states more control and oversight.   


Another affinity market and group insurance concern is short-term, limited-duration health insurance coverage. The Obama administration limited these types of "stop-gap" plans to three months. Then, the Trump administration amended the rule to up to one year, with renewals up to 36 months. And the Biden administration changed things further. It's tough to keep everything straight because regulators are reacting thoughtfully and pragmatically to the ever-shifting landscape before them.  


DEI Considerations in Insurance  


In the insurance profession, DEI talks are happening regularly. For its part, the NAIC is on a mission of "Minding the Gap," which is an overarching theme for preserving wealth and providing financial stability for those who have been historically underserved.   


Some ways that NAIC is "Minding the Gap" include working with carriers to offer products in places where they haven't been used, identifying gaps and addressing them, and actively improving financial literacy. The last method is especially critical because many people misunderstand the value of a product like life insurance. The NAIC has made a commitment to using data to find trends, such as the availability of products in a particular market.  


Little by little, the NAIC is attempting to make insurance less of a mystery and more accessible for everyone.  


Insurance Product Misrepresentations  


When people don't understand their insurance, it hurts everyone. Consider health insurance. It plays a vital role, yet many consumers are being misled about what their products cover. This disconnect has become noticeable in many lead generators for Medicare Advantage Plans. Why? Health insurance lead generators are not licensed by state insurance regulators. They just create lists of potential customer leads for licensed insurance producers.  


Understandably, this frustrates state insurance regulators. Another frustration comes from those same regulators not having regulatory authority over Medicare Advantage Plans' marketing practices due to the Federal Modernization Act of 2003. As a result, many consumers find it challenging to get clear information.  


The good news is that the regulators want to safeguard consumers. That's why some regulatory collaboration efforts are happening. Specifically, state insurance regulators are trying to work with federal agencies to manage ACA and Medicare marketing activities. Right now, bad actors are taking advantage of the ambiguity of regulatory jurisdiction. In the future, the regulators hope to remove all ambiguity for the safety of a vulnerable consumer base.  


Already, the NAIC has amended the Unfair Trade Practices Act to add the definition of health insurance, lead generator, and lead generating device, clarifying that it is an unfair trade practice for health insurance lead generators to engage in any of the unfair trade practices as defined in the model. It's a step in the right direction to reduce false advertising.  


Another related problem has been the number of unlicensed individuals selling, soliciting, and negotiating insurance. To fight this and accompanying fraudulent health insurance marketing, the NAIC is requesting a centralized database where consumers can confidently check anyone's insurance license.  


In looking ahead, the insurance industry stands at the cusp of significant transformation driven by AI, evolving regulations, and a renewed focus on DEI. The insights shared at PIMA's 2024 Spring Legislative & Regulatory Digital Forum also underscore the importance of proactive regulation, ethical AI implementation, and enhanced consumer protection measures moving forward.  


Future initiatives will likely prioritize comprehensive AI governance, streamlined regulatory frameworks for group insurance, expanded DEI efforts, and heightened transparency to combat misrepresentation. These steps will pave the way for a more resilient, inclusive, and technologically advanced insurance landscape. 


To learn more about our ever-changing industry and get access to networking opportunities with like-minded professionals, become a PIMA member today. 


PIMA® (Professional Insurance Marketing Association®) is a member-driven trade association focused exclusively on the affinity market.