The Michigan Department of Insurance and Financial Services (DIFS) has issued a bulletin that it says will help ensure consumers are protected when insurance companies use AI technologies for new policy underwriting, coverage determinations, or to decide how much their products will cost.

“The use of AI is transforming the way work is done in many industries, including insurance, but it is important that every decision made by insurers using these systems complies with all applicable federal and state laws and regulations,” said DIFS Director Anita Fox, in a news release. “This new bulletin clarifies DIFS’ expectations and outlines the responsibilities that insurers have when they adopt these new technologies to ensure that Michiganders have equitable access to insurance.”

While AI technology has led to the development of innovative new products as well as automation and simplification of many processes in the insurance industry, it can also present unique risks to consumers, such as inaccuracies, unfair discrimination, a lack of transparency in internal decision making, and the increased potential for data vulnerability, DIFS said.

“The department encourages the development and use of innovation and AI systems that contribute to safe and stable insurance markets,” the bulletin states. “However, the department expects that decisions made and actions taken by insurers using AI systems will comply with all applicable federal and state laws and regulations.

“The department recognizes the Principles of Artificial Intelligence that the National Association of Insurance Commissioners (NAIC) adopted in 2020 as an appropriate source of guidance for insurers as they develop and use AI systems. Those principles emphasize the importance of the fairness and ethical use of AI, accountability, compliance with state laws and regulations, transparency, and a safe, secure, fair, and robust system.”

The “Model Bulletin on the Use of Artificial Intelligence Systems by Insurers” passed during NAIC’s 2023 Fall National Meeting. It outlines the need for processes and controls to prevent possible AI inaccuracies, discriminating biases, and data vulnerabilities.

The bulletin reminds insurers of established regulatory laws, such as the Unfair Trade Practices Model Act, that regulate unfair methods of competition or unfair or deceptive acts. It states governance and controls on AI systems are needed to comply with these laws.

The DIFS bulletin details how existing state laws apply to the technologies. It outlines the department’s expectations for how insurers will develop and use them in their internal and consumer-facing processes.

For more information about insurance in Michigan, visit Michigan.gov/DIFS. Consumers with questions or concerns may call DIFS at 877-999-6442 Monday-Friday from 8 a.m. to 5 pm., or file a complaint online at Michigan.gov/DIFSComplaints.

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