The NAIC Big Data and Artificial Intelligence (H) Working Group has issued important updates about its AI Systems Evaluation Tool and related pilot program. Following discussions on February 9 and 17, the working group announced that California has joined the pilot, increasing total participation to 12 states. The pilot began on March 2, 2026, and will run through September 2026. Below are key developments that insurance industry participants should be aware of.
The rapid growth of big data and the adoption of artificial intelligence and machine learning (AI systems) are significantly transforming the insurance industry. These technologies may provide substantial benefits to both insurance companies and consumers by enabling the development of innovative products, improving customer services, simplifying and automating processes, and increasing efficiency and accuracy. However, without strong governance and effective controls, the use of AI systems may lead to negative consumer outcomes or threaten the financial stability of insurance companies. Insurers are responsible for managing the risks associated with developing and implementing AI systems and must show regulators that appropriate risk-based oversight mechanisms are in place and working effectively.
Recognizing these dynamics, the NAIC’s Innovation, Cybersecurity and Technology (H) Committee tasked the Big Data and AI Working Group with developing tools that enable regulators to continuously identify and evaluate risks related to AI systems. This initiative addresses both financial and consumer risks specifically arising from insurers’ use of AI systems. The AI Systems Evaluation Tool is designed to complement existing market conduct, financial analysis, and financial examination procedures for reviewing AI systems. These optional exhibits help regulators determine how extensively a company uses AI systems and whether additional analysis focused on financial and consumer risks is necessary.
The working group announced an expansion of the pilot program, which now includes 12 states: California, Colorado, Connecticut, Florida, Iowa, Louisiana, Maryland, Pennsylvania, Rhode Island, Vermont, Virginia, and Wisconsin. California joined most recently, following earlier announcements about Louisiana and Maryland.
The pilot will enable regulators to field-test the AI Systems Evaluation Tool. Participating states will use the tool for various tasks, including market conduct exams and reviews, financial analysis, and financial examinations. The initiative will involve insurance companies across different lines, such as property/casualty, life, and health insurance.
The pilot is designed to accomplish several key objectives. Primarily, regulators want to determine whether the tool helps insurers clearly explain their AI governance systems, while also assisting regulators in better understanding how companies use AI systems and implement standard governance practices. The pilot will also support ongoing improvement and development of the tool itself, help create long-term recommendations for market conduct and financial risk assessment review processes, and identify what additional regulator training may be needed in the future.
During the pilot, participating states will concentrate on domestic insurers and implement a principle of proportionality. This means regulators will prioritize examining high-risk AI systems that could cause serious consumer or financial issues, while paying less attention to low-risk back-office systems.
Version 4.0 includes several key updates:
Remaining issues under review include materiality and risk assessment definitions, the inclusion of generalized linear models, and terminology for defining the scope of model inclusion.
Information requested through the tool will be protected under the confidentiality rules of the administering state. Participating states will receive training and coordinate through monthly calls to prevent duplicative requests. Regulators will provide public updates at each NAIC national meeting. From March to September 2026, pilot states will meet monthly to share progress. The tool will be updated based on pilot feedback in September–October 2026 and re-exposed for public review, with adoption expected at the NAIC fall meeting in November 2026.
Insurers operating in participating states should prepare for potential requests for information under the tool framework and actively review their AI governance structures. The tool includes four exhibits: Exhibit A (quantify AI usage), Exhibit B (governance risk assessment framework), Exhibit C (details on high-risk AI systems), and Exhibit D (AI data details). The pilot does not prevent states from pursuing additional AI regulatory measures, and insurers should stay alert to ongoing developments as the tool is refined. AI vendors working with insurance companies should also take note of ongoing developments here. Having a clearer understanding of the regulators’ primary concerns will provide AI vendors with valuable insights as they develop and refine products for use by insurance companies.