Artificial intelligence is becoming increasingly common across the insurance industry, from claims processing and fraud detection to underwriting and customer service. As these technologies continue to develop, lawmakers are also examining how AI should be used when making decisions that directly affect policyholders.
In New Jersey, a newly introduced bill would place limits on how insurers use artificial intelligence when denying certain personal insurance claims.
What Is New Jersey Assembly Bill 5494?
New Jersey Assembly Bill 5494, introduced on September 14, 2026, would prohibit insurers from using artificial intelligence to make the final decision to deny certain homeowner, automobile, and flood insurance claims.
The legislation is currently a proposal and has not been enacted into law. It is in the early stages of the legislative process.
The bill reflects a broader discussion taking place across the insurance industry: How can insurers benefit from AI-driven technology while maintaining appropriate human oversight when claims are denied?
AI Could Still Be Used Throughout the Claims Process
Importantly, the proposed legislation would not eliminate AI from insurance claims handling.
Under the proposal, insurers could continue using automated technologies for various claims-related functions, including:
- 🔎 Claim triage
- 📋 Claim assessment
- 🛡️ Fraud scoring
- ✅ Claim approvals
- 📊 Other analytical functions
The key restriction would concern the final denial decision. AI could potentially help identify or flag a claim for additional review, but the technology could not independently make the final decision to deny a covered claim under the proposal.
This distinction is important because AI can assist insurance professionals with large amounts of information without necessarily replacing human judgment in the final decision-making process.
Which Types of Insurance Would Be Covered?
As currently proposed, A5494 would apply to three personal lines of insurance:
- 🏠 Homeowners insurance
- 🚗 Automobile insurance
- 🌊 Flood insurance
The proposal would not cover commercial, life, health, or specialty insurance.
For consumers, this means the potential impact would be focused specifically on certain property and casualty insurance claims rather than insurance claims across every line of coverage.
Why Is AI Oversight Becoming an Insurance Issue?
AI can process information quickly and assist with complex insurance workflows. At the same time, the use of automated decision-making raises questions about accuracy, transparency, data security, and the potential for unfair outcomes.
The New Jersey proposal identifies concerns including inaccuracy, unfair discrimination, data vulnerability, and lack of transparency.
For policyholders, a claims decision can have significant financial consequences. A homeowner dealing with property damage, a driver involved in an accident, or a property owner recovering from flood damage may depend on insurance benefits to help pay for repairs or replacement.
The proposed legislation therefore focuses on where AI should fit within that process—particularly when the outcome is a claim denial.
What Would Happen If the Bill Becomes Law?
A5494 would establish a restriction on AI making the final decision to deny covered claims within its scope. Violations could result in penalties of up to $5,000 per violation.
However, the bill is still moving through the legislative process. Its language and requirements could change before any final action is taken.
That makes it important for insurance professionals, employers, businesses, and consumers to distinguish between proposed legislation and current insurance requirements.
What This Could Mean for Policyholders
Regardless of how the legislation develops, the discussion highlights an important consideration for anyone purchasing insurance: understanding how claims decisions are made and what options are available if a claim is denied.
Policyholders should continue to:
- 📄 Review their insurance coverage and exclusions.
- 🧾 Keep documentation related to covered property and losses.
- 📸 Maintain photographs, receipts, estimates, and other relevant records.
- ☎️ Ask questions when they do not understand a claims decision.
- 🤝 Work with an experienced insurance professional when evaluating coverage needs.
Technology can play an important role in making insurance processes more efficient, but understanding the coverage itself remains essential.
Staying Informed as Insurance and Technology Evolve
New Jersey’s A5494 is one example of how lawmakers are examining the growing role of artificial intelligence in insurance and other industries.
For now, the bill remains proposed legislation, not a current insurance requirement. Its progress will be worth watching as New Jersey continues to consider rules surrounding AI and automated decision-making.
At Cosmo Insurance Agency, we understand that insurance can involve complex policies, changing regulations, and evolving technology. Our team is here to help businesses and individuals better understand their insurance options and navigate their coverage needs.
Have questions about your insurance coverage or benefits? Contact Cosmo Insurance Agency today to learn more.
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