Insurance Agent Appointment and Designated Responsible Licensed Producer Requirements
A majority of states require insurance companies to appoint insurance agents to market and sell insurance on their behalf and require agent appointments to be reported to state insurance departments.[5] These laws contemplate human beings working independently or as employees or independent contractors of insurance agencies that have been appointed by the insurer to market and sell the insurer’s policies. More specifically, as part of the appointment process, the insurer typically represents to the state’s insurance commissioner that the agent being appointed is competent, fiscally responsible and suitable to represent the insurer.[6] With the invention of, and improvements to, artificial intelligence, it is not clear whether a consumer’s use of an “AI agency” to source and purchase insurance coverage in a state that requires appointment would require the AI agency to be appointed.
Moreover, all states require insurance agencies to appoint or designate an individual licensed insurance agent, typically referred to as a “DRLP”, who is responsible for overseeing the insurance agency’s operations and its insurance agents to ensure that the agency’s transaction of insurance complies with the state’s insurance code.[7] Presumably, an AI agency has to have a DRLP. However, it is not clear the extent to which the DRLP is responsible for ensuring the AI agency’s insurance transactions comply with state insurance laws. Stated another way, would an individual insurance agent acting as the DRLP of an AI agency face regulatory action if the AI agency made an error in explaining an insurance policy’s coverage and exclusions? Would the answer change if the DRLP did not have any direct involvement in preparing, or the ability to review and approve, the information provided to the consumer? Opportunities exist for industry representatives to work with state legislatures and insurance regulators to identify potential amendments to DRLP and agent appointment statutes to reflect the existence of AI agencies, the extent to which human being DRLPs should be held responsible for the actions taken by AI agencies in overseeing the AI agency’s insurance business.
Insurance Trade Practice Laws
The National Association of Insurance Commissioners promulgated the Unfair Trade Practices Model Act (the “NAIC Model”) to define and prohibit insurance companies and agents from engaging in identified unfair methods of competition and deceptive acts and practices.[8] All states have either codified the NAIC Model or adopted its own unfair trade practice laws to protect insurance consumers from unethical and deceptive practices by insurance companies and agents.[9] Among other things, these laws typically prohibit misrepresenting the benefits, advantages, conditions or terms of any insurance policy or the premium to be charged for an insurance policy.[10] A consumer’s use of an AI agency, or an insurance agent’s use of artificial intelligence, to explain an insurance policy’s coverage, exclusions and premiums may not be fully accurate, which could lead to the AI agency or insurance agent engaging in misrepresentation in violation of a state’s insurance trade practice laws. While insurance regulators can pursue administrative and other relief against human agents and insurance agencies with human DRLPs who are found to have committed such misrepresentations, a consumer’s use of an AI agency may not currently allow for such relief. Opportunities exist for industry representatives to work with state legislatures and insurance regulators to consider amendment of insurance unfair trade practice laws to reflect the existence of AI agencies and to define the extent to which an AI agency can be held responsible for violation of a state’s insurance unfair trade practice laws.
Conclusion
While not exhaustive, existing insurance recordkeeping, appointment, DRLP and unfair trade practice laws do not currently reflect or contemplate the use of artificial intelligence and other technologies that are currently being used by consumers and insurance licensees in the transaction of insurance. Existing laws should not operate as a bar to technological advancement, provided consumer protections and insurance regulatory oversight remain effective. Opportunities exist to modernize state insurance laws to eliminate outdated requirements that no longer align with how insurance is currently being transacted without diminishing consumer protections or regulatory oversight. Further exploration and discussion with regulators are necessary to evaluate whether state insurance laws can or should be amended to reflect the emergence of AI agencies and technological advancements in the transaction of insurance.