Are insurance companies required to explain AI driven denials to customers

Existing Explanation Requirements Generally Still Apply

Insurance companies are generally required, under long-standing state insurance regulation, to provide policyholders with a substantive reason for a claim denial, and this existing requirement continues to apply when AI contributed to the underlying decision — though specific requirements to explicitly disclose the AI system’s particular role are less uniformly established and continue to develop.

Why General Denial Explanation Requirements Predate AI-Specific Concerns

Long before AI became a significant factor in insurance claims decisions, state insurance regulation generally already required insurers to provide policyholders with a clear, substantive reason when a claim is denied, reflecting a well-established consumer protection principle that policyholders are entitled to understand why their claim wasn’t approved, regardless of the specific method used to reach that decision.

Why This Existing Requirement Extends to AI-Involved Decisions

This existing requirement to explain a denial’s substantive reasoning doesn’t disappear simply because AI contributed to the underlying decision — an insurer generally still needs to provide the policyholder with the actual, substantive basis for the denial, even if an AI system played a significant role in generating that determination.

Where Requirements Specifically About AI Involvement Are Less Established

What’s less consistently and specifically required across jurisdictions is an explicit disclosure that AI or an automated tool specifically contributed to the denial decision, as distinct from simply explaining the substantive reason for the denial itself — this more AI-specific transparency requirement is less uniformly established and continues to develop through emerging state-level regulation and guidance.

Why Specific State Requirements Vary Considerably

Given that insurance regulation is handled primarily at the state level, the specific level of detail required in a denial explanation, and whether that explanation must specifically address any AI system’s role, varies considerably from state to state, reflecting the broader pattern of insurance AI regulation developing unevenly across different jurisdictions.

What Policyholders Can Do if an Explanation Seems Inadequate

A policyholder who receives a denial explanation that seems inadequate or unclear can request additional clarification directly from the insurer, pursue a formal appeal, and in many jurisdictions, file a complaint with their state’s insurance regulatory department if they believe the explanation provided fails to meet applicable regulatory requirements.

Bottom Line

Insurance companies are generally required under long-standing regulation to provide policyholders with a substantive reason for a claim denial, and this requirement continues to apply when AI contributed to the decision, but specific requirements to explicitly disclose an AI system’s particular role in the decision are less uniformly established and continue to develop, varying considerably by state.

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