NAIC AI Data Definition Efforts Spur Debate on Regulatory Clarity and Innovation

The National Association of Insurance Commissioners (NAIC) Third-Party Data and Models Working Group is advancing efforts to define third-party data and models within AI regulation, a key step as insurance AI models become more dynamic and complex. This initiative is driven by the need for state regulators, who primarily have experience with traditional predictive models, to establish regulatory frameworks suited to AI applications. However, the American InsurTech Council (AITC) has raised concerns that ambiguous definitions could lead to inconsistencies across states, confusion in compliance, and potentially inhibit innovation and raise costs in the insurance market.

AITC emphasized that rigid definitions might stifle the adaptive nature of third-party AI services and create unnecessary regulatory burdens, as expressed in communications to NAIC leadership. Instead, insurers should adopt governance structures that manage AI use effectively, supported by the NAIC's Model AI Bulletin, which has been adopted by 24 states to guide AI regulation. The discussions within the NAIC working groups reveal tensions between establishing clear regulatory definitions and maintaining flexibility for rapidly evolving AI technologies.

Additional voices at the NAIC meeting suggested defining third-party data and vendors with respect to data lifecycle and type, underscoring the need for precision in oversight. Moreover, accountability and transparency in managing third-party data inputs are focal points, highlighting risks related to data accuracy and compliance. These regulatory developments parallel broader industry trends toward greater accountability in AI deployment and third-party data governance.

This evolving regulatory landscape occurs alongside insurance industry efforts to leverage emerging technologies—such as IoT for real-time risk assessment—and to enhance transparency and coverage scope, as seen in recent announcements from California and industry leaders like Aon and Munich Re. The ongoing dialogues and policy developments reflect the insurance sector's balancing act between fostering innovation and ensuring regulatory clarity and consumer protection amid rapid technological change.