Limits on AI in Life Insurance All about the first law that regulates use of AI in life insurance in the U.S.

Dec 6, 2023
Reading time
2 min read
Colorado flag with a neural network over it

The U.S. state of Colorado started regulating the insurance industry’s use of AI.

What’s new: Colorado implemented the first law that regulates use of AI in life insurance and proposed extending the limits to auto insurers. Other states have taken steps to rein in both life and auto insurers under earlier statutes.

How it works: States are responsible for regulating the insurance industry in the U.S. Colorado’s rules limit kinds of data life insurers can use and how they can use it. They took effect in November based on a law passed in 2021. 

  • Data considered “traditional” is fair game. This category includes medical information, family history, occupation, criminal history, prescription drug history, and finances. 
  • Insurers that use models based on nontraditional data such as credit scores, social media activity, and shopping histories must report their use, with a description of each model, its purpose, and what data it’s based on. Insurers must test such models for biases and report the results.
  • Insurers are required to document guiding principles for model development and report annual reviews of both their governance structures and risk-management frameworks.

Other states: California ordered all insurers to notify regulators when their algorithm results in an increase to a customer’s premium; regulators can then evaluate whether the effect of the rate increase is excessive and/or discriminatory. Agencies in Connecticut and New York ordered all insurers to conform their use of AI with laws against discrimination. Washington D.C. opened an investigation to determine whether auto insurers’ use of data resulted in outcomes that discriminated against certain groups. 

Behind the news: Colorado shared an initial draft of its life-insurance regulations earlier this year before revising it. Among other changes, the initial draft prohibited AI models that discriminate not only on the basis of race but with respect to all protected classes; prevent unauthorized access to models; create a plan to respond to unforeseen consequences of their models; and engage outside experts to audit their models. The final draft omits these requirements.

Why it matters: Regulators are concerned that AI could perpetuate existing biases against marginalized groups, and Colorado’s implementation is likely to serve as a model for further regulation. Insurance companies face a growing number of lawsuits over claims that their algorithms wrongfully discriminate by age or race. Regulation could mitigate potential harms and ease customers’ concerns.

We’re thinking: Reporting of models that use social posts, purchases, and the like is a good first step, although we suspect that further rules will be needed to govern the complexities of the insurance business. Other states’ use of Colorado's regulations as a blueprint would avoid a state-by-state patchwork of contradictory regulations.


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