Trump's AI Executive Order & State Insurance Regulation

What Executive Order 14365 does, why McCarran-Ferguson still shields state insurance AI rules, how the NAIC responded, and what carriers should do now.

On December 11, 2025, President Trump signed Executive Order 14365, titled “Ensuring a National Policy Framework for Artificial Intelligence.”¹ The order calls for a minimally burdensome national AI standard and instructs federal agencies to challenge state AI laws that conflict with federal policy.² For insurers, the question is not whether the order matters. The question is whether it changes what state insurance departments can still require them to do.

This article explains what Executive Order 14365 says, why McCarran-Ferguson still matters, how the NAIC responded, and what carriers should do while the federal-state fight plays out in court.

What Is Executive Order 14365?

Executive Order 14365, signed December 11, 2025, makes federal AI policy explicit: the United States will pursue a minimally burdensome national framework, and state laws that conflict with that framework are targets for federal challenge. The order names three problems with state-by-state AI regulation: it creates a patchwork of 50 regimes, it may require models to embed ideological bias, and it can regulate beyond state borders.²

The order does not create new federal insurance law. It does not repeal McCarran-Ferguson. It does not even mention insurance. What it does is set up a federal mechanism to challenge state laws, including state AI laws that affect insurance, while Congress considers national legislation. For carriers, this means legal uncertainty will rise, but the daily compliance obligation remains state-by-state for now.

Why the NAIC Response Matters

The order directs the Attorney General to create an AI Litigation Task Force to challenge state AI laws on the grounds that they are preempted by federal law, violate the Commerce Clause, or are otherwise unlawful.³ It also directs the Secretary of Commerce to evaluate state AI laws within 90 days and identify those that are “onerous” or conflict with federal AI policy.⁴ The order specifically cites Colorado’s SB 24-205, the algorithmic-discrimination law, as an example of excessive state regulation.⁵

But federal preemption of state insurance regulation is not automatic. Since 1945, the McCarran-Ferguson Act has provided that no federal statute shall be construed to “invalidate, impair, or supersede” state insurance regulation unless the federal statute “specifically relates to the business of insurance.”⁶ This is a reverse-preemption rule: it protects state insurance law from broad federal statutes that happen to touch insurance.

Executive Order 14365 is not an Act of Congress. It is a presidential directive. The argument that an executive order can unilaterally displace state insurance regulation without a specific congressional grant of authority is legally weak, and state insurance regulators know it.⁷ That does not mean the order is harmless. It means the fight will move into litigation and legislation, not into an immediate federal takeover of insurance AI rules.

What is the McCarran-Ferguson Act and why does it protect state insurance AI rules?

McCarran-Ferguson was passed in 1945 after the Supreme Court held that insurance transactions could be regulated as interstate commerce.⁸ Congress responded by ceding primary regulatory authority to the states, subject to narrow exceptions for federal laws that expressly target the business of insurance.

For AI regulation, the practical effect is this: a general federal AI law, or a general executive order about AI, probably cannot preempt state insurance rules. But a federal statute that specifically says “this applies to insurance underwriting” could. Executive Order 14365 does not do that. It does not even mention McCarran-Ferguson.⁹

This is the carrier’s ambiguity to manage. The order creates pressure, headlines, and litigation risk, but it does not, by its own terms, wipe out Colorado’s SB 26-189, New York’s Circular Letter No. 7, or the NAIC Model Bulleton’s adoption in roughly half the states.¹⁰

What did the NAIC say in response?

The NAIC issued a statement on December 16, 2025, expressing deep concern over the order.¹¹ The association, which represents chief insurance regulators from all 50 states and U.S. territories, urged the administration to reconsider and to “affirm state regulation of AI in the business of insurance.”¹²

The NAIC’s position is not just institutional self-interest. State insurance regulators have argued that the order’s broad preemption language could implicate “routine analytical tools insurers use every day,” including traditional underwriting and rate-setting models that have been regulated at the state level for decades.¹³ If the federal government can preempt state AI rules, it may also be able to preempt state rate regulation, market conduct oversight, and consumer protection enforcement.

The NAIC’s response matters because it signals that state insurance departments are unlikely to stop enforcing their existing AI rules while waiting for federal courts to resolve the preemption question. Carriers should expect state exams, market conduct inquiries, and AI governance attestations to continue on schedule.

Can Executive Order 14365 preempt state insurance regulation? Not on its own. Here is why.

No federal statute gives the President direct authority to override state insurance regulation. The McCarran-Ferguson Act protects state insurance law from broad federal statutes unless they “specifically relate to the business of insurance.” Executive Order 14365 is not a statute. It is a presidential directive, and on its own it cannot displace the state-based insurance regulatory system that Congress has protected since 1945.

That is why the NAIC response is so direct. The association asked the administration to “affirm state regulation of AI in the business of insurance.” It warned that the order could disrupt state processes that protect consumers from unfair discrimination and could even reach routine analytical tools such as underwriting and rate-setting models.¹³

The absence of an insurance carve-out in the order does not change the legal baseline. It changes the political and litigation environment. Carriers should expect the federal government to test the limits of preemption, but they should not assume that test will succeed quickly.

What Is Federal Preemption of State Insurance AI Likely to Look Like?

The preemption fight will probably take one of three paths.

Path one: litigation. The Department of Justice could sue states with broad AI laws, such as Colorado or California, arguing that their statutes violate the Commerce Clause or are preempted by federal law. State attorneys general will defend. The outcome will depend on whether courts view the state laws as regulating insurance, which McCarran-Ferguson protects, or as regulating general AI deployment, which federal law might preempt.¹⁴

Path two: legislation. The executive order calls on Congress to create a national AI framework that preempts inconsistent state laws.¹⁵ Congress could pass a law that explicitly includes or excludes insurance. If it includes insurance, McCarran-Ferguson may not save state rules unless the national standard specifically preserves state insurance regulation.

Path three: regulatory pressure. Even without a court ruling or statute, federal agencies could condition grants, contracts, or other benefits on state compliance with federal AI policy. For insurers, this is less direct than preemption but still creates political and operational risk.

In all three paths, the timeline is measured in years, not months. Colorado’s SB 26-189 will take effect on January 1, 2027, regardless of what happens in federal court.¹⁶

FIG. 1 — THE PREEMPTION FIGHT, DATEDSOURCE: EO 14365 · NAIC STATEMENT, DEC 2025 · COLO. SB 26-189

For carriers, the practical question is not abstract. It is whether they can safely wait for courts to decide before complying with Colorado’s disclosure rules, New York’s testing requirements, or the NAIC Model Bulletin. The answer is no. The most likely outcome is a period of dual compliance: state rules remain enforceable during litigation, and federal preemption of state insurance AI, if it ever comes, will require either a Supreme Court ruling or an act of Congress.

Carriers that treat the executive order as a temporary disruption rather than a permanent shield will make better decisions in 2026 and 2027. The legal posture may shift, but the compliance calendar does not.

What Should Insurers Do Now?

Carriers cannot wait for the preemption question to be settled. State insurance departments are still issuing rules, running exams, and expecting compliance. The defensible posture is to comply with state requirements while monitoring federal litigation and legislation.

Assume state rules remain enforceable. Build compliance programs for Colorado, New York, California, and any other state with AI-specific insurance requirements. Do not rely on EO 14365 as a reason to delay.
Map the federal-state overlap. Identify which state rules are likely targets of federal challenge and which are protected by McCarran-Ferguson. Rules that directly regulate insurance underwriting, pricing, and claims handling are stronger candidates for state protection than general AI disclosure laws.¹⁷
Watch the litigation calendar. Track Department of Justice challenges and state defenses. If a federal court enjoins a state law, carriers in that state will need to adjust quickly. Until then, the state rule is the rule.
Keep the board informed. Federal preemption is a legal and political risk, not just a compliance risk. Risk committees should understand the exposure and the timeline.
Document everything. Whether a state rule survives federal challenge depends on whether it is framed as insurance regulation. Carriers should document how their AI governance programs align with state insurance law, not just with general AI policy.¹⁸

FAQ

Does Executive Order 14365 preempt state insurance AI laws immediately? No. The order directs federal agencies to evaluate and challenge state AI laws, but it is not self-executing. Federal preemption of state insurance regulation requires either a federal statute that specifically relates to insurance, a court ruling, or a constitutional challenge that succeeds. Until one of those happens, state insurance AI rules remain enforceable.

What is McCarran-Ferguson and why does it matter here? The McCarran-Ferguson Act of 1945 protects state insurance regulation from broad federal statutes unless those statutes specifically relate to the business of insurance. Because Executive Order 14365 is not a statute and does not specifically address insurance, McCarran-Ferguson is the doctrinal shield state regulators will use to defend their AI rules.

What was the NAIC response to Executive Order 14365? The NAIC publicly opposed the order, urging the administration to reconsider and to affirm state regulation of AI in the business of insurance. The association warned that the order could disrupt consumer protections and reach routine insurance analytics.

Should insurers stop complying with Colorado or New York AI rules because of EO 14365? No. State rules remain in force while preemption is litigated. Colorado’s SB 26-189 takes effect January 1, 2027. New York’s Circular Letter No. 7 is already in effect. Carriers should continue state compliance and monitor federal developments.

The Bottom Line for State Insurance Regulation

Executive Order 14365 is a significant political statement. It has already influenced Colorado’s decision to rewrite SB 24-205 into SB 26-189, a narrower disclosure-and-recourse law.¹⁹ But it has not eliminated state insurance regulation of AI. The McCarran-Ferguson Act, the NAIC’s opposition, and the slow pace of litigation all mean that state rules will remain enforceable for the foreseeable future.

The carriers that win will be the ones that treat EO 14365 as a risk to manage, not an excuse to pause. Federal preemption of state insurance AI may come eventually, but not through this executive order alone.

For related guidance, see our analysis of Colorado SB 26-189, the NAIC Model Bulletin, and AI vendor risk assessment.