If you feel like you’re just starting to get your arms around the rules for using AI in insurance, take a deep breath. Things are about to get a lot more complicated.
Just when we were all getting used to navigating the patchwork of different state regulations, a new executive order from the White House has dropped, aiming to create a single, unified federal approach to governing AI. On the surface, that might sound like a good thing—one set of rules instead of 50, right?
But in the world of insurance, it’s never that simple. This move has tossed a whole lot of uncertainty into the mix, leaving many of us wondering which set of rules we’re even supposed to follow. Let's break down what’s happening and what it means for you.
Welcome to the "Dual-Track" Dilemma
I was chatting with Karin Aldama, an attorney at Gallagher & Kennedy, and she put the current situation perfectly. She said insurers are now stuck in a “dual-track environment.”
Imagine you’re trying to follow two different roadmaps at the same time. That’s what’s happening here. The executive order, signed in December 2025 and titled "Ensuring a National Policy Framework for Artificial Intelligence," basically says, "Hey, we're creating a federal task force and a single set of rules for AI."
But until that federal framework is actually built, tested, and put into place, you still have all the existing state laws to deal with. According to Aldama, this means we “basically have to work in a kind of dual-track environment where they still have to apply the state regulations while getting ready for complying with whatever is being implemented on the federal level.”
So, you can’t ignore the states, but you also can’t ignore what’s coming down the pipeline from Washington, D.C. It’s a classic case of being caught between a rock and a hard place.
Don't Mistake Confusion for a Free Pass
Now, whenever there’s this kind of regulatory confusion, it’s tempting to think it’s a "get-out-of-jail-free card." But that would be a huge mistake.
Scott Kosnoff, a partner at Faegre Drinker, had a sharp warning about this. He said thinking this way would be “short-sighted and lead to bad results.” His point is simple: regardless of what the politicians or regulators are doing, you still have a business to run and risks to manage.
He stressed that insurance companies need to stay vigilant with their own AI governance. The only way to truly protect yourself from all the potential risks—bias, privacy violations, bad decisions—is by having your own solid framework for how you build, test, and use these powerful tools.
And let’s not forget why these regulations are popping up in the first place. Gina Clausen Lozier, a founding partner at Clausen Choquette, explained that it’s all about accountability and transparency. Regulators want to make sure that when an algorithm is making a decision about a policy or a claim, there’s still oversight. As she put it, “a human has to touch that file.”
The Real Fight: States' Rights vs. Federal Power
Here’s where things get really sticky. For over 75 years, the insurance industry has been regulated at the state level. This isn't just a tradition; it's the law.
The McCarran-Ferguson Act of 1945 explicitly gives states the authority to regulate the business of insurance. And state regulators are, to put it mildly, not thrilled about the idea of the federal government stepping onto their turf.
Paige Waters, a partner at Troutman Pepper Locke, said there’s a real concern among regulators that this executive order is an attempt “to prevent the states from enforcing their state laws that apply to AI.” They’ve been regulating the algorithms and predictive models used in underwriting and claims for years, and they see this as direct interference.
This sets the stage for a major legal battle. Waters pointed out that the whole situation could end up in court, with states challenging the executive order based on the McCarran-Ferguson Act. “That litigation could take a long time to resolve,” she added.
And that, right there, is the core of the uncertainty. We could be looking at years of legal fights before we have a clear answer on who is actually in charge.
Is There a Silver Lining? Maybe, But It Comes with a Catch.
Okay, so it’s messy. But could there be an upside?
Karin Aldama thinks so. She believes that if this executive order actually succeeds in creating a clear, single federal standard, it could be a “net positive” for the industry in the long run. Getting rid of that confusing patchwork of 50 different state rules would certainly make life easier for everyone.
But there’s a catch.
She also noted that a shift to a federal system could give a competitive advantage to the big, national insurance companies. Why? Because they "probably already have more systems in place that would allow them to change their compliance model more quickly" than smaller, regional carriers. It’s something to keep in mind.
So, What Should You Be Doing Right Now?
With all this uncertainty swirling, what’s the smart move? The advice from legal experts is surprisingly consistent and clear: Stay the course.
Don’t rip up your current compliance plans. Don’t stop following state regulations. Here’s the game plan they recommend:
- Keep complying with state laws. This was the number one piece of advice from everyone. As Paige Waters said, you should continue to comply with state insurance laws “until such a time as the insurance regulators are not enforcing those existing laws.” Since that’s not happening anytime soon, keep doing what you’re doing.
- Watch Washington like a hawk. Karin Aldama advises carefully monitoring what federal agencies are doing to implement this order. Pay close attention to any proposed legislation or new regulations that come out.
- Track the legal battles. Keep an eye on any disputes that arise between the states and the federal government over this. The outcomes of those early skirmishes will give you a better idea of which way the wind is blowing.
Ultimately, this is a time for diligence, not panic. The regulatory landscape for AI was already shifting, and this executive order just added another layer of complexity. For now, the best strategy is to keep your head down, focus on solid internal governance, and continue meeting your current obligations while keeping a very close eye on the horizon. It’s going to be an interesting ride.
