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DFR Issues Comprehensive Bulletin on Use of AI Systems in the Business of Insurance

March 12, 2024

MONTPELIER, Vt. — Today the Vermont Department of Financial Regulation announced the issuance of Bulletin 229, principally adopting the National Association of Insurance Commissioners (NAIC) Model on the Use of Artificial Intelligence (AI) Systems by Insurers.

"AI has tremendous potential to drive innovation in the insurance industry, but it comes with responsibilities,” Department Commissioner Kevin J. Gaffney explains. “This bulletin sets the framework for insurers to navigate the challenges associated with AI, ensuring consumer protection and regulatory compliance.”

This approach balances important consumer protection and market integrity concerns with the advancements that AI may offer for insurance. The bulletin emphasizes transparency and accountability, and addresses issues related to the use of AI such as potential inaccuracies or unfair bias. It explains DFR’s position that existing state insurance laws and rules apply to insurer use of AI. Insurers are reminded that any decisions or actions impacting consumers that are made or supported by AI Systems must comply with all applicable insurance laws, including those addressing unfair trade practices and prohibiting unfair discrimination.

With this guidance, DFR outlines its expectations as to how insurers will govern the development, acquisition and use AI systems and technologies to ensure that insurer use of AI is compliant with regulatory requirements and mitigates the potential risks of AI use. 

Adoption of the bulletin furthers DFR’s ongoing work to safeguard consumer interests and promote market integrity.  It provides important guidance and explanation of DFR’s views of how insurers can utilize AI in a responsible and compliant manner. Insurers are also advised of the type of information and documentation that the Department may request during an investigation or examination to determine compliance.

The bulletin encompasses the following key principles-based practices and framework:

  • Governance Framework: Insurance companies are expected to establish a robust governance framework that defines clear roles and responsibilities for the development, deployment, and oversight of AI systems.
  • Controls for Mitigating Adverse Consumer Outcomes: Insurers are expected to implement controls that specifically target and mitigate the risk of adverse consumer outcomes associated with the use of AI. This includes measures to prevent bias, discrimination, and unfair treatment.
  • Written AI System Program Policies and Procedures: Insurance companies should develop and maintain comprehensive written policies and procedures governing the use of AI in their operations. These documents should provide clear guidance on the design, implementation, and monitoring of AI systems.
  • Risk Management Controls: Robust risk management controls should be in place to identify, assess, and manage potential risks associated with AI systems. This ensures that insurers can effectively navigate the challenges posed by evolving technology.
  • Internal Audits: Regular internal audits are imperative to evaluate the effectiveness of AI systems and associated controls. Insurers should conduct thorough assessments to identify and address any issues promptly.
  • Testing: Insurers are urged to implement rigorous testing procedures to assess the reliability, accuracy, and fairness of AI systems. This includes both pre-implementation testing and ongoing evaluations to adapt to changing circumstances.
  • Third-Party Vendor Management and Accountability: When utilizing third-party vendors for AI-related services, insurers must establish clear accountability measures and oversight mechanisms to ensure compliance with regulatory requirements and ethical standards.

The bulletin provides clear guidance for insurers while allowing for solutions that don’t take a “one-size-fits-all” approach, recognizing that insurers have varying levels of involvement with AI Systems and that AI technology is a rapidly changing landscape. DFR is committed to supporting innovation, ensuring consumer protection and working collaboratively with insurers to address the unique challenges and opportunity presented by the use of AI.

“DFR’s regulatory approach to the responsible use of AI Systems by insurers is no different than many issues we regulate,” Commissioner Gaffney adds. “The Department is transparent in its expectations for the insurance industry’s use of AI Systems and is focused on monitoring and assessing how those expectations are put into practice by industry to allow for fair and equitable outcomes to protect consumers.”

Additional information about Bulletin No. 229 can be obtained by emailing Mary Block, Director of Insurance Regulation at For general insurance-related questions, contact Consumer Services at (800) 864-1784 or email

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