Will AI Raise Your Insurance Premiums or Deny Your Claims? Your Consumer Protection Guide

Will AI Raise Your Insurance Premiums or Deny Your Claims? Your 2026 Consumer Protection Guide

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Key Takeaways

• The NAIC launched a 12-state AI evaluation pilot in March 2026, with a nationwide rollout expected by November 2026.
• Cigna's AI algorithm denied 300,000 claims in two months at 1.2 seconds per review — yet 90% of appealed decisions were reversed, suggesting a near-universal error rate on reviewed cases.
• Only 23 states plus Washington D.C. have adopted AI underwriting regulations; 22 states still have no rules protecting consumers from automated decisions.
• California's SB 1120 (effective January 2025) requires a licensed physician to sign off on any AI-driven health insurance denial — but it only protects Californians.

What Happened

Artificial intelligence has quietly moved into nearly every corner of the insurance industry — from deciding whether to approve your health claim to setting your car insurance rate. Now regulators are racing to catch up before more consumers get hurt.

In March 2026, the National Association of Insurance Commissioners (NAIC — the organization that coordinates insurance regulation across all 50 states) launched a formal AI Systems Evaluation Tool pilot program across 12 states: California, Colorado, Connecticut, Florida, Iowa, Louisiana, Maryland, Pennsylvania, Rhode Island, Vermont, Virginia, and Wisconsin. A nationwide rollout is expected by November 2026. The goal is to make insurers prove their AI tools are fair, transparent, and not secretly working against the people they cover.

The pilot examines four key areas. Exhibit A asks how much insurers actually rely on AI. Exhibit B reviews governance and risk controls. Exhibit C digs into high-risk AI systems. Exhibit D scrutinizes data sources — particularly whether companies are using proxies for race, ethnicity, social media activity, or aerial imagery to set rates or deny claims.

As of April 1, 2026, the NAIC's AI Model Bulletin — a set of voluntary guidelines for responsible AI use — had been adopted by 23 states plus Washington D.C. But 22 states have still refused to adopt any AI underwriting regulations at all. At least 17 states introduced AI-specific insurance bills in 2025 alone, signaling that momentum is building fast even where laws haven't yet landed.

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Why It Matters for Your Coverage

That rapidly expanding legislative activity has real stakes for your wallet and your health — because the problems AI is creating for policyholders are already well-documented and growing.

Think of AI in insurance like an extremely fast, extremely confident employee who has never actually met you. It reviews your claim or sets your policy coverage in seconds, working from patterns in data rather than any understanding of your individual situation. When that system makes a mistake, the financial and medical consequences can be severe.

Consider the numbers. In 2025, 41% of healthcare providers reported that more than 10% of their claims were denied — a sharp jump from 30% in 2022 and 38% in 2024. Nearly 20% of claims filed by Americans on Affordable Care Act (ACA) plans were denied in recent years. In 2023 alone, approximately 73 million in-network claims were denied. In-network means your doctor or hospital had already agreed to your insurer's rates — and you were still turned away.

The most striking example of AI-driven claims management gone wrong involves Cigna. The company's AI algorithm reportedly denied 300,000 claims in just two months, spending an average of 1.2 seconds on each review. When policyholders appealed those denials, 90% of the reviewed decisions were reversed — suggesting that nine in ten automated denials may have been errors. A federal class action lawsuit filed in Minnesota against UnitedHealthcare made similar allegations, claiming the company deployed an AI model with a 90% error rate in claim denials. These are not edge cases. These are systemic patterns tied directly to automated decision-making with little human oversight.

This is why the regulatory push matters for your insurance comparison process. If you are shopping across providers, you deserve to know whether a company uses AI to process claims and whether that AI has been independently audited. The answer can be the difference between a smoothly paid claim and a months-long appeals battle.

On the premium side, AI is increasingly used for risk assessment — the process insurers use to decide how much to charge you. If an algorithm determines that your neighborhood, credit score, or social media behavior makes you a statistically higher risk, your rate goes up, often with no explanation you can meaningfully challenge. The NAIC pilot specifically targets this concern by scrutinizing data sources that could encode racial or socioeconomic bias. Protecting consumers here is also about protecting real insurance savings — because unfair risk scoring means some people pay significantly more than they should.

California moved ahead of the national curve. Its SB 1120, which took effect in January 2025, prohibits health insurers from denying coverage based solely on automated AI tools without a licensed human physician reviewing and deciding on medical necessity. That is a meaningful protection for policy coverage — but it only applies if you live in California.

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The AI Angle

The scale of AI adoption makes clear why these protections cannot wait. Today, 71% of health insurers report using AI for utilization management — industry jargon for the prior authorization (getting advance approval before a procedure) and concurrent authorization (approval while you are already receiving care) processes that determine whether your treatment gets covered. Meanwhile, 92% of auto insurers report current or planned AI usage across their operations.

Insurtechs like Lemonade deploy AI for instant claims adjudication (automated claim decisions), while traditional carriers use machine learning models for fraud detection and risk assessment scoring. NAIC President Scott White framed the regulatory challenge plainly: officials 'don't want to stand in the way of innovation that generally serves consumers' but want AI used 'transparently, fairly and in ways that hold up to scrutiny.' Not everyone in the industry agrees. A joint letter from major trade groups representing life, health, P&C, mutual, and reinsurance insurers warned that 'the industry remains significantly concerned about the lack of detail and guidance around the proposed pilot' — a signal that many carriers are not eager to open their AI systems to outside review. Consumer acceptance, however, is growing fast: acceptance of AI in property and casualty insurance nearly doubled, rising from 20% in 2025 to 39% in 2026, which means AI's role will only expand regardless of industry pushback.

What Should You Do? 3 Action Steps

1. Check Your State's AI Protections Before You Sign Any Policy

Before finalizing any policy coverage decision, check whether your state has adopted the NAIC AI Model Bulletin or has passed its own AI insurance law. If you are in one of the 12 NAIC pilot states — California, Colorado, Connecticut, Florida, Iowa, Louisiana, Maryland, Pennsylvania, Rhode Island, Vermont, Virginia, or Wisconsin — you have more regulatory eyes on your insurer than consumers in unregulated states. Visit your state insurance department's website and search for 'AI insurance regulations' or 'automated decision-making.' A licensed independent insurance agent can also walk you through what protections apply to you personally. Always consult a licensed agent before making coverage decisions.

2. Appeal Every Denial — In Writing and On the Record

If your claim is denied, do not accept the first answer. The Cigna data alone — where 90% of appealed AI-driven denials were reversed — shows that automated decisions in claims management have a startlingly high error rate. Request the specific reason for denial in writing, then file a formal internal appeal. If that fails, escalate to an external appeal through your state's department of insurance. Keep records of every communication: dates, representative names, reference numbers, and copies of all correspondence. Effective claims management on your end means treating every denial as the beginning of a process, not the end of one.

3. Ask Your Insurer Directly How AI Affects Your Rates and Claims

You have the right to ask how your insurer uses AI in underwriting (the process of deciding whether to cover you and at what price) and in claims processing. Specific questions worth asking: 'Is AI used to make or influence claim denial decisions?' and 'How are those AI decisions reviewed by a human?' If your insurer can't or won't answer clearly, that's valuable data for your next insurance comparison. A licensed independent agent can help you identify carriers with stronger human oversight — and often uncover genuine insurance savings by matching you to a company whose risk assessment model is a better fit for your actual profile. This article provides general information only; please consult a licensed agent for guidance tailored to your needs.

Frequently Asked Questions

Can an AI algorithm legally deny my health insurance claim without a human reviewing it in 2026?

It depends entirely on where you live. In California, SB 1120 (effective January 2025) requires that a licensed human physician review and decide on medical necessity before any health insurance denial can be finalized — AI alone cannot be the final word on your policy coverage. However, 22 states still have no AI underwriting regulations, meaning fully automated denials may face fewer legal challenges in those states. The NAIC's 12-state pilot, launched in March 2026 with a nationwide rollout expected by November 2026, is designed to build a national accountability framework. If you are unsure of your rights, contact your state's department of insurance or a licensed agent.

How does AI-based risk assessment affect my car or home insurance premium in 2026?

AI risk assessment models analyze vast datasets — including credit scores, claims history, location, aerial imagery, and sometimes social media activity — to calculate your premium. If the model flags you as higher risk based on these inputs, your rate increases, often with limited explanation. The NAIC pilot specifically scrutinizes data sources that could serve as illegal proxies for race or ethnicity. With 92% of auto insurers currently using or planning AI, this issue affects most drivers directly. Conducting a thorough insurance comparison across multiple carriers can reveal significant premium differences, since each company's AI model may evaluate your profile very differently.

What should I do if my insurance claim is denied by an AI system and I think the decision is wrong?

Appeal immediately and document everything in writing. The evidence from Cigna's AI-driven claims management system — where 90% of appealed denials were overturned — demonstrates that automated decisions carry a high margin of error. Start with a formal internal appeal to your insurer, demanding the written reason for denial. If that fails, file an external appeal with your state's department of insurance. In states that have adopted the NAIC AI Model Bulletin, regulators have broader tools to intervene. Your policy coverage rights do not disappear because a machine said no. If the denial involves a significant dollar amount or a medical necessity decision, consider consulting an attorney who specializes in insurance disputes alongside your licensed agent.

Which states have the strongest AI insurance consumer protection laws going into 2026?

California leads the pack with SB 1120, which prohibits AI-only health claim denials and has been in effect since January 2025. As of April 1, 2026, 23 states plus Washington D.C. have adopted the NAIC AI Model Bulletin. The 12 states participating in the NAIC's March 2026 AI pilot — California, Colorado, Connecticut, Florida, Iowa, Louisiana, Maryland, Pennsylvania, Rhode Island, Vermont, Virginia, and Wisconsin — currently receive the most active regulatory scrutiny. With at least 17 states having introduced AI-specific insurance bills in 2025 alone, the landscape is shifting quickly. If you are weighing where to live or doing a serious insurance comparison across state lines, the strength of local AI consumer protections is increasingly worth factoring in.

Can AI in insurance actually help me find insurance savings, or will it always work against me?

AI genuinely cuts both ways. On the positive side, faster claims management, more precise risk assessment, and automated fraud detection can lower operational costs — savings that responsible insurers can pass on to lower-risk policyholders. Consumer acceptance of AI in property and casualty insurance nearly doubled, from 20% in 2025 to 39% in 2026, partly because some consumers have experienced faster claims and more personalized pricing. On the negative side, opaque algorithms can raise rates for reasons you cannot see or contest, and the Cigna and UnitedHealthcare cases show just how costly automated errors can be. The smartest approach is to stay informed, do regular insurance comparison shopping across multiple providers, and partner with a licensed independent agent who can identify real insurance savings without sacrificing your right to fair, transparent treatment. This article is for informational purposes only — always consult a licensed agent for advice specific to your situation.

Disclaimer: This article is for informational purposes only and does not constitute insurance advice. Always consult a licensed insurance agent for personalized guidance.