CLAIMS TREND: AI
The Future Is Now: AI Oversight Becomes the New Regulatory Normal for Insurers
Artificial intelligence has quickly moved from a theoretical concern to a front-burner regulatory issue for insurers. As of October 2026, 29 jurisdictions have adopted the NAIC Model Bulletin: Use of Artificial Intelligence Systems by Insurers.1 Several influential states, including California, Colorado, New York, and Texas, have also issued their own insurance-specific AI guidance.2 Together, these developments reflect a growing expectation that insurers maintain formal governance frameworks around the use of AI in underwriting, pricing, claims handling, fraud detection, and marketing.
The NAIC model bulletin emphasizes insurer accountability for AI-driven decisions and requires insurers to establish governance, risk-management, and oversight processes designed to ensure compliance with existing insurance laws.3 The model bulletin addresses board and management oversight, testing and validation of AI systems, monitoring for unfair discrimination, data governance, vendor oversight, documentation of AI-enabled decisions, and mechanisms for addressing consumer complaints and regulatory inquiries. As states continue to adopt the model or issue their own guidance, insurers should expect heightened scrutiny of AI-assisted underwriting and claims practices and ensure that AI governance remains a priority compliance function.
Practical Impact: Although the NAIC Model Bulletin does not expressly require insurers to retain AI prompts, inputs, or outputs, its emphasis on governance, oversight, and explainability may effectively require insurers to maintain sufficient records to reconstruct and defend AI-assisted underwriting and claims decisions. Insurers using AI tools should evaluate whether their existing document-retention and litigation-hold procedures adequately capture AI-generated decision records.
STATE DEVELOPMENTS
GEORGIA
Georgia Supreme Court Clarifies UM Claims Can Be Settled Before Liability Limits Are Exhausted
In a significant decision for uninsured/underinsured motorist (“UM”) claims, the Supreme Court of Georgia held that Georgia law does not require an insured to exhaust an at-fault driver’s liability coverage before settling a UM claim with his or her own auto insurer. The court rejected the notion that prior cases imposing an exhaustion requirement in UM litigation also govern pre-suit settlement negotiations, concluding that those decisions addressed recovery of UM benefits in litigation, not settlement of UM claims.
The ruling is noteworthy because it clarifies that Georgia law permits UM insurers to resolve UM exposure before the underlying tort action has been fully resolved, providing insurers with additional flexibility in settling UM claims. The court vacated the appellate decision and remanded the matter for reconsideration, clarifying that neither Georgia’s UM statutes nor prior precedent prohibit settlement of a UM claim before resolution of the tortfeasor’s liability coverage. Decision.
NEW YORK
New York Court Rescinds Property Policy Based on Dwelling Unit Misrepresentation
A New York appellate court reaffirmed a property insurer’s rescission of a homeowners policy where the insured materially misrepresented the risk. Specifically, the court held that a home insured as a one-family dwelling was, in fact, configured as a three-family residence. Relying on the insured’s testimony, photographs, and floor plans, the court concluded that the application contained a material misrepresentation concerning the number of families occupying the property.
The court further found that the insurer established materiality through underwriting guidelines showing it would not have issued the policy had the true facts been disclosed. Notably, the court rejected the insured’s argument that the application question regarding the number of families was ambiguous and emphasized that the insured admitted she signed the application without reading it. The policy was therefore declared void ab initio. Decision.
CALIFORNIA
California Extends Prohibition on Wildfire-Related Non-Renewals
On September 30, 2026, Governor Gavin Newsom signed Assembly Bill 2038, extending California’s restrictions on residential property insurance non-renewals following wildfire-related disasters. The law doubles the current moratorium period from one year to two years for properties located in ZIP codes within or adjacent to a wildfire perimeter where a state of emergency has been declared.
The legislation also extends certain renewal obligations for homeowners who suffer a disaster-related total loss, increasing the required renewal period from 24 to 36 months. The measure continues California’s recent trend of expanding limitations on residential property insurers operating in wildfire-affected areas. Statute.
CONNECTICUT
Connecticut Requires Explanations for Personal Lines Premium Increases
Connecticut has implemented a new law requiring personal lines insurers to explain renewal premium increases upon request and to notify policyholders of that right in renewal notices. While largely procedural, the bulletin reflects a broader regulatory push toward greater transparency surrounding premium increases. Bulletin.
3 NAIC, “NAIC Model Bulletin: Use of Artificial Intelligence Systems by Insurers,” https://content.naic.org/sites/default/files/cmte-h-big-data-artificial-intelligence-wg-ai-model-bulletin.pdf.pdf (last accessed October 15, 2026).