The Trump administration’s executive order on artificial intelligence is creating a cloud of uncertainty for the insurance industry, prompting concerns about potential federal overreach into state regulatory frameworks. While the full impact remains to be seen, legal experts suggest the order could trigger litigation centered on the McCarran-Ferguson Act, which traditionally safeguards state control over the insurance sector.
Paige Waters, a partner with Troutman Pepper Locke, articulated these concerns in a recent InsuranceNewsNet article. Waters explained that regulators are worried the executive order might be leveraged to challenge state laws governing the use of AI within insurance, specifically those pertaining to algorithms and predictive modeling.
“There’s a concern that the executive order is interfering with the states’ rights to regulate insurance in that space,” Waters said. “In particular, they’re concerned because insurance companies have been using algorithms and predictive modeling for years and years that is currently regulated under state insurance laws.”
The core of the issue lies in the long-standing practice of insurers utilizing sophisticated algorithms to assess risk and determine premiums. These practices, however, already fall under the purview of state insurance regulations. The executive order’s potential to disrupt this established system is what’s fueling anxiety within the industry.
The McCarran-Ferguson Act of 1945 plays a crucial role in this debate. Enacted to reverse a Supreme Court decision that had subjected insurance to federal antitrust regulation, the Act explicitly allows states to regulate the business of insurance. Waters suggests that if the executive order is interpreted in a way that infringes upon state insurance commissioners’ authority, a legal challenge invoking the McCarran-Ferguson Act is highly probable.
“I think is a bigger issue, maybe, that causes a lot of uncertainty within the insurance industry is that, if the executive order is interpreted or enforced in such a way that it would impinge on the state insurance commissioner’s right to regulate those insurance companies as they have been, there could be a litigation or court challenge,” Waters stated.
Such litigation could be protracted and complex, leaving insurers in a state of limbo. Waters advises companies to continue adhering to existing state insurance laws for the time being. “I would think that the insurance companies would want to continue doing what they’re doing to comply because there may end up being litigation in the future with respect to whether or not the executive order is reverse preempted by the McCarran-Ferguson Act — and that litigation could take a long time to resolve,” she added. “I would encourage insurers to continue to comply with state insurance laws until such a time as the insurance regulators are not enforcing those existing laws.”
The uncertainty surrounding the executive order comes at a time when AI is rapidly transforming the financial services landscape. Insurers are increasingly leveraging AI for tasks ranging from fraud detection and claims processing to personalized risk assessment and customer service. The potential benefits are significant, including increased efficiency, reduced costs, and improved accuracy. However, these advancements also raise concerns about fairness, transparency, and potential bias in algorithmic decision-making.
The state of Texas, as highlighted in a report by Dallas Innovates, is emerging as a potential leader in shaping federal AI regulation. The state’s proactive approach to technology and its robust insurance market could position it as a key player in the ongoing debate over AI governance.
Beyond the legal challenges, the executive order also raises practical questions about implementation and enforcement. The specifics of how the order will be applied to the insurance industry remain unclear, leaving insurers scrambling to assess their potential exposure and adjust their compliance strategies. The lack of clarity is further compounded by the rapidly evolving nature of AI technology itself.
Troutman Pepper Locke is actively involved in several events focused on AI and related legal issues. These include the “Artificial Intelligence in Defense Practice: Tools, Prompts, Workflows, Implementation, and Governance Seminar” (), the HIMSS Global Health Conference & Exhibition – Emerge Innovation Experience 2026 (), OrthoPitch 2026 (), and a webinar on U.S. Privacy and AI Law Update (). These engagements demonstrate the firm’s commitment to staying at the forefront of these complex legal and technological developments.
For now, the insurance industry finds itself navigating a period of heightened uncertainty. The interplay between federal ambitions and state regulatory authority will ultimately determine the future of AI in insurance, and the potential for legal battles looms large.
