No Harm from AI in Insurance Act

AN ACT
TO ESTABLISH STANDARDS FOR THE USE OF ARTIFICIAL INTELLIGENCE IN INSURANCE; TO PROTECT CONSUMERS FROM UNFAIR DISCRIMINATION, ERRORS, AND OPAQUE AUTOMATED DECISION-MAKING; TO REQUIRE GOVERNANCE, TESTING, AND OVERSIGHT OF HIGH-RISK AI SYSTEMS; TO PROVIDE CONSUMER RIGHTS AND SAFEGUARDS IN THE CLAIMS PROCESS; TO REQUIRE ADOPTION OF NATIONAL STANDARDS; TO PROVIDE ENFORCEMENT AUTHORITY; AND TO PROVIDE AN EFFECTIVE DATE.

SECTION 1. Short Title

This act may be cited as the “No Harm from AI in Insurance Act.”

SECTION 2. Legislative Findings and Purpose

(A) The General Assembly finds that:

  1. Insurers increasingly use artificial intelligence systems to make or support decisions affecting insurance consumers, including underwriting, pricing, marketing, fraud detection, and claims handling.
  2. Artificial intelligence can improve efficiency but may also produce biased, inaccurate, or unfair outcomes if not properly governed.
  3. Existing insurance laws do not comprehensively address the unique risks posed by automated and algorithmic decision-making.
  4. South Carolina has a compelling interest in ensuring that the use of artificial intelligence in insurance is fair, transparent, explainable, and subject to meaningful human oversight.

(B) The purposes of this act are to:

  1. Establish clear standards for insurer use of artificial intelligence;
  2. Prevent unfair discrimination and consumer harm caused by automated decision-making;
  3. Ensure transparency, accountability, and human review in high-impact insurance decisions;
  4. Provide regulatory oversight and enforceable consumer protections; and
  5. Align South Carolina’s insurance regulation with nationally recognized standards.

SECTION 3. Definitions

As used in this act:

  1. “Artificial intelligence system” or “AI system” means any automated system that uses data, algorithms, or machine learning to make predictions, classifications, recommendations, or decisions that affect insurance consumers.
  2. “High-risk AI system” means an AI system used to approve or deny coverage, set premiums, flag potential fraud, estimate claim payments, or recommend or determine claim outcomes.
  3. “Insurer” means any entity authorized to transact insurance in this State.
  4. “Insurance producer, adjuster, or administrator” includes agents, adjusters, third-party administrators, and any person acting on behalf of an insurer.
  5. “Developer or vendor” means any person or entity that designs, trains, licenses, or provides an AI system for use in insurance in this State.

SECTION 4. Applicability

This act applies to insurers, producers, adjusters, administrators, and third-party vendors that develop or use artificial intelligence systems in connection with insurance business conducted in South Carolina.

SECTION 5. AI Governance and Risk-Management Program

(A) Each insurer using a high-risk AI system shall establish and maintain a documented AI Governance and Risk-Management Program.

(B) The program must include:

  1. An inventory of all AI systems used, including third-party tools;
  2. Assignment of accountability and oversight responsibilities, including senior management involvement;
  3. Data governance standards ensuring data accuracy, relevance, and appropriate use;
  4. Pre-deployment testing and ongoing monitoring to evaluate accuracy, reliability, and discriminatory impacts;
  5. Vendor oversight procedures requiring documentation of training data, known risks, and testing protocols; and
  6. Recordkeeping sufficient to allow review by the South Carolina Department of Insurance.

SECTION 6. Consumer Protections in Claims Handling

(A) An insurer shall provide clear notice to a consumer when an AI system is used to:

  1. Estimate losses;
  2. Determine coverage;
  3. Evaluate potential fraud; or
  4. Recommend or determine a claim payment.

(B) The notice must inform the consumer that AI is being used, the purpose of the AI system, and the consumer’s right to human review.

(C) An insurer may not deny, reduce, or delay a claim based solely on the output of an AI system.

(D) A qualified human reviewer shall independently evaluate AI-influenced claim decisions and must have authority to override the AI system.

(E) Insurers shall regularly test AI systems used in claims to identify and correct unfair or discriminatory outcomes.

(F) If a consumer interacts with an automated chatbot or system, the insurer must clearly disclose that the interaction is automated and remains fully responsible for the content and outcomes of such communications.

SECTION 7. Consumer Rights

(A) A consumer has the right to request a plain-language explanation when an AI system materially influences an underwriting, pricing, or claims decision.

(B) A consumer has the right to request human review of any adverse decision influenced by AI.

(C) Human review must be conducted by a qualified individual who was not solely responsible for the original AI-influenced decision.

(D) An insurer may not retaliate against a consumer for exercising rights under this act.

SECTION 8. Duties of AI Developers and Vendors

A developer or vendor that provides an AI system for insurance use in this State shall:

  1. Provide insurers with documentation explaining system design, training, limitations, and known risks;
  2. Provide information necessary for insurers to test, monitor, and validate the system;
  3. Maintain reasonable risk-management practices to mitigate discriminatory or harmful outcomes.

SECTION 9. Reporting and Regulatory Oversight

(A) The South Carolina Department of Insurance may require insurers to submit confidential reports concerning:

  1. AI systems in use;
  2. Data sources relied upon;
  3. Testing and monitoring results; and
  4. Identified errors, bias, or corrective actions.

(B) The Department may conduct examinations or audits related to AI compliance.

SECTION 10. Adoption of National Standards and Rulemaking

Within one year of enactment, the Director of the South Carolina Department of Insurance shall:

  1. Adopt the NAIC Artificial Intelligence Model Bulletin; and
  2. Promulgate regulations to implement this act, including standards for testing, monitoring, consumer notice, and governance.

SECTION 11. Enforcement

(A) A violation of this act constitutes an unfair insurance practice and an unfair trade practice.

(B) The South Carolina Department of Insurance may issue cease-and-desist orders, require corrective action, impose fines, suspend or revoke licenses, or order modification or discontinuation of an AI system.

(C) The Attorney General may enforce violations under applicable consumer protection or civil rights laws.

SECTION 12. Safe Harbor

An insurer that demonstrates substantial compliance with Department of Insurance AI regulations, including a documented governance program and impact assessments, shall receive a rebuttable presumption that it exercised reasonable care.

SECTION 13. Effective Date

This act takes effect on January 1 following approval by the Governor and applies to all insurance claims open or filed on or after that date. The Department of Insurance may begin rulemaking immediately.