Unfair Trade Practices
State insurance laws barring deceptive, coercive, or harmful insurer practices, such as misrepresentation, twisting and rebating, and now some AI decisions.
Unfair trade practices laws are the foundation of state insurance consumer protection. They prohibit deceptive advertising, twisting, rebating, and other conduct that harms consumers or distorts competition. The NAIC split unfair claim settlement out into a companion model act in 1990, though many states still carry it inside their own unfair trade practices law. The NAIC Model Bulletin on AI restates that these same laws apply to AI-supported insurance decisions.
The NAIC Model Bulletin runs on this authority rather than adding to it. Its first paragraph tells insurers that when AI makes or supports a decision affecting a consumer, that decision must still “comply with all applicable insurance laws and regulations,” and it names unfair trade practices and unfair discrimination among them. Section 1.8 puts systems built by a third-party vendor inside the insurer’s own AI program, so the insurer answers for a vendor’s model the same way it answers for one of its own.
What this means for carriers: AI governance has to be framed around compliance obligations that already exist. The better the documentation showing that AI decisions were fair, accurate, and reviewable, the stronger the defense against an unfair-trade-practices charge. See our guide to AI governance in insurance.