Regulating AI in Insurance: Texas’ TRAIGA Bill Could Set a National Trend

Artificial intelligence is quickly changing the insurance industry, providing efficiency and predictive capabilities that were unimaginable just a decade ago. However, with these advancements come significant responsibilities and increased regulatory scrutiny.

Texas is leading the way in AI regulation with the proposed Texas Responsible Artificial Intelligence Governance Act (TRAIGA) and other AI-focused legislation. These laws are designed to govern the use of AI in the insurance and healthcare sectors, specifically addressing concerns related to bias, transparency, and fairness.

This legislation could have key implications for the insurance industry and technology providers.

What’s the Texas AI Law?

TRAIGA (House Bill 1709) is Texas’ most comprehensive AI regulation proposal. Unlike industry-specific AI regulations in other states, TRAIGA applies broad restrictions across multiple sectors, including insurance. It would set rules for how companies use AI in important decisions—like deciding who gets insurance and how much they pay.

Key Rules in TRAIGA:

• Defining “High-Risk AI” – The bill categorizes AI systems that significantly influence “consequential decisions” (such as underwriting, pricing, and claims) as “high-risk AI.”
• Annual AI Audits & Impact Assessments – Insurance companies utilizing AI must conduct annual risk assessments to ensure fairness and compliance.
• Consumer Disclosure Requirements – Insurers must notify consumers when AI influences their decisions.
• Transparency & Explainability – Companies deploying AI must document how their models work and justify their decisions.

Restrictions on AI Practices

TRAIGA prohibits or severely limits the use of AI systems in several activities, including:

• Manipulation of human behavior using subliminal techniques.
• Social scoring based on social behavior or predicted characteristics.
• Use of biometric identifiers without consent.
• Categorization based on sensitive attributes (race, religion, etc.).
• Exploitation of personal attributes to cause harm.
• Generation of unlawful explicit content.
• Infringement of state and/or federal anti-discrimination laws and privacy protections.

Separate from TRAIGA, Texas lawmakers are proposing additional regulations specific to health insurance AI applications. One proposed Senate bill would prohibit health insurers from using AI as the sole basis for denying claims. The goal is to ensure that medical necessity decisions remain in human hands and not solely dependent on automated systems.

AI Bias and Consumer Protection Concerns Driving Legislation

TRAIGA and similar initiatives reflect a growing national trend of scrutinizing AI’s impact, particularly regarding transparency, bias, and accountability. Key concerns driving regulation include:

• Algorithmic Discrimination – AI models can unintentionally reinforce biases, leading to unfair discrimination in pricing, coverage decisions, and claim denials.
• Transparency Issues – AI decision-making is often opaque, making it difficult for regulators and consumers to challenge unfair outcomes.
• Consumer Protections – Insurers may deploy AI-driven pricing and risk assessment models without clear consumer consent or understanding.
• Ethical Oversight in Health Care – AI-driven claim denials and underwriting decisions could prioritize profit over patient well-being.

Potential Impacts on the Insurance Industry

TRAIGA poses regulatory firewalls and compliance costs for insurers deploying or developing AI systems. It mandates annual impact assessments, risk management policies, and disclosures to consumers interacting with AI systems. Potential impacts for insurers include:

• Increased Compliance Costs – Insurers will need to invest in AI governance frameworks, transparency reporting, and third-party audits.
• Stricter AI Model Documentation – Agents using AI-driven quoting or underwriting tools may need to provide more detailed explanations of AI-generated recommendations.
• Stronger Consumer Protections – Agents will need to ensure their AI-powered platforms provide clear consumer disclosures

Is Nationwide AI Regulation on the Horizon?

Just as California’s privacy laws influenced national data protection policies, TRAIGA, if passed, could inspire similar AI regulations across the country. The National Association of Insurance Commissioners (NAIC) has signaled interest in establishing AI regulatory guidelines, and multiple state legislatures, including California, New York, and Illinois, are considering similar AI bills.

As AI regulation evolves, insurance agents can take steps to ensure compliance and maintain customer trust. Stay informed on the issue, monitor any AI tools you currently use in your agency, and be transparent with your customers so they understand how your agency and carriers use AI.

AI regulation is still in its early stages, which presents an opportunity for creating balanced policies that promote innovation while ensuring consumer protection. Texas’ proposed legislation is a first step towards managing the sweeping influence of AI in the insurance industry. We will soon discover whether this legislation is halted or if it paves the way for future regulations.