The Takeaway
Key items Illinois’ insurers need to add to their To Do lists to comply with recently issued Department of Insurance guidelines on using artificial intelligence (AI):
- Develop programs specifically tailored to responsible use of AI
- Establish strict protocols for working with third parties who use AI
- Be prepared for Department of Insurance oversight on the use of AI
Introduction
Technological advancements, particularly in Artificial Intelligence (AI), present unique opportunities and challenges for the insurance industry. As insurers increasingly leverage AI systems across various facets of their operations, regulatory and legislative bodies are closely monitoring these developments to ensure consumer protection, fair practices, and compliance with existing laws and regulations.
On March 13, 2024, the Illinois Department of Insurance issued a comprehensive bulletin outlining its expectations and guidelines for insurers regarding the responsible use of AI systems.
Understanding the Regulatory Landscape
At the heart of the bulletin lies a firm reminder that decisions influenced or made by AI systems must adhere to all relevant insurance laws and regulations, particularly those pertaining to trade practices and discrimination.
AI has the potential to introduce risks such as inaccuracy, unfair discrimination, data vulnerability, and lack of transparency. Thus, insurers are tasked with implementing robust measures to mitigate these risks and uphold consumer interests.
Key Guidelines for Insurers
The focus of the Department’s bulletin is the directive for insurers to establish, implement, and maintain written programs specifically tailored to the responsible use of AI systems (referred to as AIS Programs). These programs are expected to encompass a wide range of elements, including governance structures, risk management controls, and internal audit functions. Insurers are urged to develop comprehensive frameworks that not only mitigate the risk of adverse consumer outcomes but also foster transparency, accountability, and ethical use of AI technologies.
Navigating Third-Party AI Systems and Data
Recognizing the increasing reliance on third-party AI systems and data, the bulletin underscores the importance of rigorous due diligence when engaging with external vendors. Insurers are encouraged to establish stringent standards, policies, and protocols to evaluate and monitor third-party AI systems and data sources. This includes assessing vendors’ capabilities to comply with regulatory requirements, data security measures, and contractual terms governing data usage and privacy.
Regulatory Oversight and Examination Considerations
As part of its regulatory oversight, the Department of Insurance emphasizes its authority to scrutinize insurers’ AI systems through various mechanisms, including market conduct actions and examinations. Insurers should be prepared for inquiries and examinations regarding their governance frameworks, risk management practices, and compliance with AIS Programs.
Conclusion
As AI continues to revolutionize the insurance industry, insurers must navigate evolving regulatory and legislative expectations to ensure fair and ethical practices. By adhering to the guidelines outlined in the Department’s bulletin and maintaining transparency in their use of AI systems, insurers can mitigate risks and build trust with regulators, legislators, and consumers alike.
