Last Updated: 1/17/2025

Issue: Artificial intelligence (AI) is a technology which enables computer systems to accomplish tasks that are normally associated with humans’ intelligence. Examples include gathering, summarizing and synthesizing information; analyzing data, images, video, and sounds; and generating pseudo-original content for human consumption. The use of AI has proliferated across all industries led by a rise in accessible data, increased computing capabilities, pre-built generative AI foundational large language models such as ChatGPT, and changing consumer expectations. AI tools continue to evolve and create opportunities for business growth. It is disrupting and improving organizations across all industries, including insurance. Companies such as IBM, Apple, Google, Facebook and Amazon are leveraging AI platforms and solutions for customers, partners and employees. In the insurance industry, AI is transforming areas such as underwriting, customer service, claims, marketing and fraud detection.

Background: AI technology continues to develop and improve. It is increasingly proficient at performing tasks historically difficult for computers to execute like recognizing images and videos, identifying spoken words, and parsing unstructured data to generate text, images, and videos. Increased computing power, memory capacity, cloud computing, large language models, and global connectivity have enabled machines to run complex algorithms faster and handle more data than a human could. Additionally, shaped by their experiences with other industries, insurance customers now expect quick on-demand services.

The successes of AI are also facilitated by the massive amounts of data now available. The speed at which data is generated has made data management tools like AI even more important. Whether it is structured or unstructured data (e.g., text, images, videos, social media, wearables, telematics, sensors, news, weather and traffic reports), AI can execute complex analyses and computations at a speed impossible for humans and generates faster insights.

AI has the potential to impact the insurance industry in multiple ways. It is currently used in marketing, pricing, underwriting, claims processing, fraud detection, customer service, and to increase internal operational efficiencies. Many insurers are using virtual assistants like chatbots to improve customer experience. Chatbots are available 24/7 to give basic advice, check billing information, and address common inquiries and transactions. Insurers currently using chatbots include Lemonade, Geico, Allstate and Lincoln Financial. In addition, claims management can be augmented using AI and machine learning techniques in different stages of the claim handling process. Machine learning models can help quickly assess the severity of damages and predict repair costs from historical data, sensors and images.

Insurers are sitting on a treasure-trove of big data, the main ingredient AI requires to be successful. The abundant unstructured data can be leveraged through AI to increase customer engagement, create more personalized service and marketing, and match the customers with appropriate products.

A 2021  PwC survey  concludes that business leaders are “cautiously optimistic about their future prospects,” as 83% are focusing their business strategy on the growth of AI, while insurers top AI-related concern is the potential for cybersecurity breaches with AI technology. Looking forward, AI will enable insurers to move from a "detect and repair" framework to a "predict and prevent" framework, allowing insurers to help their customers manage their risks and avoid claims altogether.

A recently emerging form of AI is large language models (LLMs). LLMs are trained to understand the complexities of language, and can recognize, generate, and classify text, allowing them to converse with humans naturally and answer complex questions. One of the most popular LLMs is OpenAI’s ChatGPT.  Since its launch in November of 2022, ChatGPT has 100 million weekly users  (as of December 2024). Individuals are using this technology to improve their lives in a number of ways from writing code, summarizing and synthesizing content, and answering difficult math problems to crafting cover letters and resumes. Though, given that ChatGPT has limitations, including lacking common sense, emotional intelligence or an understanding of context and may even “hallucinate” facts, users should be careful about trusting all of its information.

Still, LLMs like ChatGPT and other generative AI technologies are set to potentially disrupt industries and job markets around the world. In a recent report, Goldman Sachs estimates that over 300 million jobs could be affected by technologies similar to ChatGPT, with white-collar and IT jobs most affected. AI’s impact on the world of insurance is still uncertain. Though some in Insurtech expect technology like ChatGPT to have “transformative power” on the industry, helping those in insurance track emerging issues and customer needs, the limitations previously discussed make it unlikely that ChatGPT will replace underwriters, claims handlers, or customer service representatives in the near-future.

Status: The NAIC formed the Innovation Cybersecurity and Technology (H) Committee (formerly Innovation and Technology (EX) Task Force) to explore the technological developments in the insurance sector. The Committee provides a forum for state insurance regulators to discuss innovation and technology developments and how these will affect consumer protection, insurer and producer oversight, and the state insurance regulatory framework. The Committee is also charged with discussing emerging issues related to insurers or licensees leveraging new technologies, such as artificial intelligence. 

In 2019, the Task Force established the Big Data and Artificial Intelligence (H) Working Group to study the development of artificial intelligence, its use in the insurance sector, and its impact on consumer protection and privacy, marketplace dynamics, and the state-based insurance regulatory framework.  The Working Group developed regulatory principles on artificial intelligence that were adopted by the full NAIC membership at the 2020 Summer National Meeting.

Beginning in 2021, the Working Group began surveying insurers by line of business to learn how AI and machine learning techniques are currently being used and what governance and risk management controls are in place. Reports of the aggregate responses from the private passenger auto, homeowners, and life insurance writers were issued in December 2022, August 2023, and December 2023, respectively. The Responses from the health insurance surveys issued late 2024 are not due from carriers until February 2025. The responses from the auto, home, and life surveys revealed the following:

• Out of the 193 auto insurers responding, 88% reported they use, plan to use, or plan to explore AI/ML models in their operations, and out of 194 home insurers responding, that figure was 70%, and of the 161 life companies that responded, it was significantly lower, at 58% of those said they currently use, plan to use, or plan to explore using AI or ML models in their operations.
• P&C insurers reported using AI across all operations in a variety of ways. In marketing, common use cases included targeted online advertising and making offers to existing customers. In underwriting, AI was used for renewal evaluations and inspections to verify policy characteristics. In pricing, machine learning is used for risk scoring and determining rate factor relativities, and in claims, AI is used for accident image analysis and to estimate ultimate claim settlement values, along with fraud detection.
• Similar to P&C, life insurers are using AI for targeted online advertising and making offers to existing customers. Life insurers are also using AI to reduce policy issuance time, for approval/denial decisions, and to assign underwriting risk classes. Models were used to automate, augment, and support human decision-making depending on their use.
• Roughly half of the models used for marketing were developed by third-party vendors, but for pricing & underwriting, auto and home Insurers mostly developed their models in-house.

Following analysis of this data, the Working Group is considering the need for clarification of, or additional, insurance laws and regulations. In 2024, the Third-Party Data and Models (H) Task Force was formed to evaluate and develop a regulatory framework around the use of third-party AI data and models used by insurance companies.

During the time the surveys were issued and responses were compiled, the NAIC developed the Model Bulletin on the Use of Artificial Intelligence by Insurance Companies, which was adopted in December 2023. The bulletin establishes guidelines and expectations to ensure responsible use of AI by insurance companies that aligns with the NAIC Principles of Artificial Intelligence. It reminds insurers that decisions or actions made or supported by AI must comply with all applicable insurance laws and regulations, sets forth expectations as to how insurers will govern the use of AI, and advises insurers of the type of information the Department may request during an investigation or examination.