On August 13, 2023, the Innovation, Cybersecurity, and Technology (H) Committee (“H Committee”) met at the Summer 2023 US National Meeting of the National Association of Insurance Commissioners (“NAIC”). The following are highlights of the meeting:
Working Group Reports
The H Committee heard the following reports from its constituent working groups:
- Big Data and Artificial Intelligence (H) Working Group: The public report of the Home Artificial Intelligence/Machine Learning (“AI/ML”) survey (the “Home AI/ML Survey”) was released. The Home AI/ML Survey was conducted, among other things, to help the working group analyze home insurers’ use of AI/ML, identify risks and exposures, and consider potential regulatory responses. Out of 194 home insurers that completed the survey, 136 currently use or plan to use AI/ML, primarily in the areas of claims, underwriting, marketing, fraud detection, rating, and loss prevention. The working group previously issued a report in December 2022 on the survey of AI/ML in private passenger auto insurance; the report on a separate survey of AI/ML in life insurance is expected to be issued later this year. The working group also heard a presentation on generative AI from Deloitte that covered how generative AI works, its emerging capabilities, how to measure and mitigate risks, insurance industry examples, benefits of AI and most common terms and definitions.
- Cybersecurity (H) Working Group : A drafting group has developed a Cybersecurity Event Response Plan. Among other things, the Plan is intended to govern multi-state coordination when multiple states are investigating a significant incident at an insurer. While the drafting group has already received comments various stakeholders, it expects to have a public call on the draft in September.
- E–Commerce (H) Working Group: The working group directed NAIC staff to draft a framework for states to consider when reviewing requirements that need to be modernized. A call to discuss the document has been scheduled for September 7.
- Innovation in Technology and Regulation (H) Working Group: The working group met on August 29 to hear presentations from the Global Insurance Accelerator and InsurTech NY. A regulator-only update is scheduled for September to hear presentations from two states on their use of technology to improve regulatory processes.
- Privacy Protections (H) Working Group: The working group announced that it will be asking for additional time to draft the new NAIC Insurance Consumer Privacy Protection Model Law (#674). Please see our related Legal Update for further details on the working group’smeeting.
In July 2023, the H Committee exposed for public comment a draft of a Model Bulletin on the Use of Algorithms, Predictive Models, and Artificial Intelligence (AI) Systems by Insurers (“Draft Model Bulletin”). The Draft Model Bulletin includes four sections—Section 1: Introduction, Background, and Legislative Authority; Section 2: Definitions; Section 3 – Regulatory Guidance and Expectations; and Section 4 – Regulatory Oversight and Examination Considerations. In general, the Draft Model Bulletin adopts a principles-based approach that predominantly focuses on corporate governance. It also highlights the need for oversight of a licensee’s third-party AI systems with regulatory responsibility for such oversight remaining with the licensees. During the meeting, the H Committee emphasized that efforts at validation should be part of the industry’s practices, but that it chose to avoid providing written guidance on the matter at this time due to practical limitations that existing with respect to testing.
Initial Public Comments on the Draft Model Bulletin
The H Committee received initial comments from interested parties on the Draft Model Bulletin, which included the following:
- Consumer representatives expressed discontent with the principles-based, process governance approach of the Draft Model Bulletin, particularly in light of the fact that the NAIC Principles on AI were adopted back in 2020, which already provided the principles framework to the industry. Consumer representatives also emphasized that testing should be a requirement under the Draft Model Bulletin and proxy discrimination should be expressly addressed.
- Industry representatives expressed concerns with regard to the requirements to oversee third-party vendors, such as required contract provisions; emphasized the need to adhere to (and not exceed) requirements that exist under current insurance laws and regulations, as they would be the legal authority supporting the Draft Model Bulletin, as well as the need to avoid unnecessary costs or requirements that could stifle innovation; noted that further clarifications would be needed with respect to certain definitions; expressed support for development of a risk-based approach; and urged consideration of incorporating principles of self-audit.
- The American Academy of Actuaries expressed approval for the decision-focused approach in the Draft Model Bulletin, but questioned to what extent such a bulletin would add anything to existing Own Risk and Solvency Assessment requirements.
The H Committee will accept further comments on the Draft Model Bulletin through September 5, 2023, and hopes to be able to produce a revised draft of the document by the end of September.
Given the significant number of initial public comments received during the meeting, we expect there will be substantial discussion of the topics covered in the Draft Model Bulletin as the H Committee works to finalize the document. We will report on these discussion and how the document evolves as it is finalized.
To view additional updates from the US NAIC Summer 2023 National Meeting, visit our meeting highlights page.