Artificial Intelligence (AI) is reshaping the insurance industry, prompting regulators to issue guidance for responsible use of AI. As AI transforms the insurance industry, insurers must balance innovation with regulatory compliance and consumer protection. Delaware and New Jersey have recently joined 21 other states and issued guidance on AI in insurance based on the AI Model Bulletin adopted by the National Association of Insurance Commissioners (NAIC) in 2023. Here’s what insurers need to know.

Delaware’s AI Bulletin No. 148

On Feb. 5, the Delaware Department of Insurance issued Bulletin No. 148, providing regulatory guidance for insurers using Artificial Intelligence (AI). Insurers are expected to comply with all insurance laws and regulations when making decisions or taking actions impacting consumers that are using AI, particularly when those impact consumers, are expected to comply with all insurance laws and regulations when making decisions or taking actions. Key points include:

• Compliance with Existing Laws and Regulations: The department’s regulatory expectations require compliance with existing laws and regulations for AI-driven decisions or actions, particularly those that impact consumers, and include the following:
• Unfair Trade Practice Act (UTPA) 18 Del. C. Ch. 23 and Unfair Claims Settlement Practices Act (UCSPA) 18 Del. C § 2304: AI must not lead to unfair methods of competition, deceptive practices, or unfair claims handling.
• Corporate Governance Annual Disclosure Act (CGAD) 18 Del. C. Ch. 85: Insurers must disclose governance practices and AI oversight mechanisms.
• Delaware Rate Making Laws 18 Del. C. Chs. 25 and 26: AI-driven pricing models must avoid producing excessive, inadequate, or unfairly discriminatory rates.
• AI Systems (AIS) Program: Insurers must establish a formal AIS Program that serves as a governance framework for AI that includes risk management controls and internal audits to oversee AI and ensure transparency as well prevent unfair discrimination.
• Third-Party AI Accountability: Insurers using AI from third-parties must ensure AI vendors comply with regulatory requirements.
• Regulatory Examination: The department may request documentation on how AI is used in consumer decision-making during investigations or market conduct examinations.

Delaware joins 21 jurisdictions, preceding New Jersey as the 23^rd, in adopting AI guidance similar to the NAIC Bulletin on the Use of Artificial Intelligence (AI) Systems by Insurers.

New Jersey’s AI Bulletin 25-03

Similarly to Delaware, on Feb. 11, New Jersey’s Department of Banking and Insurance issued Bulletin 25-03 concerning the use of AI systems in insurance, with a focus on the following:

• Compliance with Existing Laws: Insurers must ensure that AI systems do not lead to unfair discrimination and that they adhere to state laws, including the following:
  • Unfair Trade Practices Act (UTPA).
  • Unfair Claims Settlement Practices Act (UCSPA).
  • Corporate Governance Annual Disclosure Act N.J.S.A. 17:23-38.
  • Property and Casualty Rating Laws: N.J.S.A.17:29A-1 (motor vehicle); N.J.S.A. 17:29AA-1 (commercial lines); N.J.A.C. 11:1-2.1 (property and casualty filings); N.J.A.C. 11:3-16.1. (private passenger auto automobile insurance); N.J.A.C. 11:4-9.1 (personal lines); and N.J.A.C. 11:13-8.1 (commercial lines).
  • Market Conduct Surveillance: N.J.S.A. 17:23-20.
• AI Governance and Risk Management: Insurers must establish AI governance frameworks to document, monitor, and oversee AI use. Governance must include policies for bias detection, risk assessment, and explainability of AI.
• Consumer Protection: Consumers must be notified when AI is used in underwriting, rating, or claims decisions. Insurers must provide clear, understandable explanations of AI-driven outcomes upon request.
• Third-Party AI Oversight: Insurers are responsible for AI used from third-parties and must ensure compliance with New Jersey regulatory requirements. AI risk assessments should extend to external data sources and algorithms used in decision-making.
• Regulatory Review: The department may request detailed documentation on AI governance, risk assessments, and model validation during audits.

New Jersey is the 23^rd state to adopt AI guidance similar to the NAIC Bulletin on the Use of Artificial Intelligence (AI) Systems by Insurers.

NAIC’s Model Bulletin on AI Systems

The NAIC adopted a Model Bulletin on the Use of Artificial Intelligence (AI) Systems by Insurers in December 2023, serving as a regulatory framework on AI to be adopted by state insurance regulators. The bulletin outlines expectations for insurers using AI, focusing on the following:

• Legal Compliance: Insurers must ensure that AI-driven decisions align with all applicable federal and state laws, including the Unfair Trade Practices Act (UTPA) and the Unfair Claims Settlement Practices Act (UCSPA).
• AI Governance Framework: Insurers should establish comprehensive governance structures overseeing the development, acquisition, and deployment of AI. Insurers should implement risk management protocols and internal controls to prevent unfair discrimination and ensure transparency.
• Risk Mitigation: Insurers should adopt measures to identify and mitigate risk associated with AI. Insurers should implement verification and testing methods to identify and fix potential biases, data vulnerabilities, and issues related to transparency in AI models.
• Documentation and Oversight: Insurers must maintain detailed records of AI system usage and be prepared to provide the information during investigations or regulatory examinations.

As of February 2025, 23 states have adopted bulletins based on the NAIC AI Model Bulletin.