NAIC’s Draft Model Bulletin: Navigating the Course of Artificial Intelligence in Insurance

AI

On the seventeenth day of July, in the year 2023, the NAIC set forth the Exposure Draft of the Model Bulletin concerning the employment of Algorithms, Predictive Models, and Artificial Intelligence Systems in the realm of insurance. The window for the receipt of written discourse upon this matter extends through to September 5 of the same year, with the conduit being a man named Miguel Romero.

The heart of the Draft Model Bulletin lies in expectations held by insurance regulators for those insurance entities utilizing Artificial Intelligence Systems, or AIS. It beckons insurers to uphold a drafted AIS Program, a piece of paper that represents the assessment of risks that lay in the pathway of AIS usage. This Bulletin, a missive drafted with deliberate care, aims to ensure that the wielding of AIS by insurers remains true and adheres to the law of the land, the law that forbids any unfair trade practices. It presents a map that outlines four territories of best practices and counsel:

  • The structure of the AIS Program
  • Governance, the ruling hand
  • Risk Management and Internal Controls, the shields against the unexpected
  • The engagement of Third Party AIS, the external warriors

This Bulletin, in all its grandeur, sets forth the meaning of critical concepts such as Artificial Intelligence and AIS Systems, amongst others. It provides counsel to insurers on documenting the governance and risk management protocols of their AI Systems.

The Draft Model Bulletin asserts the regulators’ power to peer into the use of AIS by insurers. It affirms thus:

An Insurer may find himself answering questions about its governance structure, its risk management strategy, and its internal controls – those safeguards acknowledged in Section 3, along with other inquiries about the specific model, AI System, or application, possibly even including requests for specific types of information and documents.

The insurers must be prepared to discuss their usage of third party AIS systems with regulators. Insurers stand accountable for the third party AIS they employ, and it is encouraged that they keep a watchful eye on and evaluate the AIS services provided by these external entities. The Draft Model Bulletin, in turn, offers direction on the clauses that should find their way into contracts with third parties.

The spirit of the Draft Model Bulletin rests on a risk-based, not prescriptive, approach. It acknowledges that the insurers have the liberty to showcase their adherence to the applicable laws through diverse paths.

Legal Disclaimer

The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. The content presented is not intended to be a substitute for professional legal, tax, or financial advice, nor should it be relied upon as such. Readers are encouraged to consult with their own attorney, CPA, and tax advisors to obtain specific guidance and advice tailored to their individual circumstances. No responsibility is assumed for any inaccuracies or errors in the information contained herein, and John Montague and Montague Law expressly disclaim any liability for any actions taken or not taken based on the information provided in this article.

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