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Your Friday Five

The AI Regulation Stalemate

President Trump just signed an Executive Order to preempt state AI regulations. Your compliance team is asking what this means. Your board wants to know if the programs you’ve been building for six months still matter.

The short answer: keep building.

The long answer requires understanding what the Executive Order actually does, what it can’t do, and why state regulators aren’t blinking.

What the Executive Order Actually Says

On December 11, 2025, President Trump signed “Ensuring a National Policy Framework for Artificial Intelligence.” The order uses two enforcement approaches to challenge state AI laws.

First, a DOJ task force. The Attorney General has 30 days to establish an “AI Litigation Task Force” to sue states over laws the administration considers inconsistent with federal AI policy. The task force will challenge laws on grounds including unconstitutional regulation of interstate commerce and preemption by existing federal regulations.

Second, funding leverage. The order directs the Commerce Department to evaluate whether states with “burdensome” AI regulations should be blocked from receiving Broadband Equity Access and Deployment (BEAD) funding—a $42.5 billion federal grant program for expanding high-speed internet access.

The order specifically names Colorado’s AI Act as an example of problematic state regulation, claiming it “may even force AI models to produce false results.”

Sources: White House Executive Order, December 11, 2025:
​Ensuring a National Policy Framework for Artificial Intelligence – The White House​

Why State Regulators Aren’t Pausing

But here’s what the Executive Order doesn’t tell you: state regulators have heard this before.

Colorado’s AI Act implementation was already pushed to June 30, 2026 after negotiations during a special legislative session in August. The delay happened for practical reasons and not because of federal pressure.

New York’s Department of Financial Services continues implementing its AI guidelines for insurers. The DFS issued Insurance Circular Letter No. 7 in July 2024, establishing expectations for how insurers use AI and external consumer data in underwriting and pricing. Those expectations remain in force.

The NAIC has been even more direct. On December 16, 2025, the National Association of Insurance Commissioners issued a statement expressing “deep concern” over the Executive Order.

Their position is clear. State insurance regulators have protected consumers and fostered innovation for over 150 years, and they’re not stepping aside. As of March 2025, 24 states have adopted the NAIC Model Bulletin on the Use of AI Systems by Insurers.

No state has signaled a halt to enforcement while this plays out in court.
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​Source: NAIC Statement on AI Executive Order, December 16, 2025:
​Statement from the National Association of Insurance Commissioners (NAIC) on AI Executive Order​

The Legal Reality

Executive orders face serious challenges in preempting state insurance regulations.

The McCarran-Ferguson Act of 1945 gives states primary authority to regulate the business of insurance. The law provides that no Act of Congress shall invalidate state insurance laws unless federal law specifically relates to insurance. Courts have historically upheld this structure for eight decades.

Even Republicans are pushing back. Florida Governor Ron DeSantis posted on X that “an executive order doesn’t/can’t preempt state legislative action. Congress could, theoretically, preempt states through legislation.” DeSantis has since proposed his own “Citizen Bill of Rights for Artificial Intelligence” and stated publicly that Florida has “a right” to regulate AI regardless of the federal order.

Legal experts agree. John Bergmayer, legal director at Public Knowledge, told NPR: “They’re trying to find a way to bypass Congress with these various theories in the executive order. Legally, I don’t think they work very well.”

Congress has already rejected AI preemption multiple times. The proposed 10-year moratorium on state AI regulations was stripped from the “One Big Beautiful Bill Act” in July 2025. Similar language failed in the National Defense Authorization Act in December.

Litigation could take months or years. State rules apply until courts say otherwise.

Source: NPR coverage of DeSantis comments and legal analysis:
Trump tries to preempt state AI laws via an executive order : NPR​

What This Executive Order Really Means for Your Institution

Institutions that pause compliance efforts waiting for federal clarity may face regulatory penalties in the meantime.

The Executive Order itself does not—and cannot—overturn existing state law. That can only be done by an act of Congress or the courts. Until legal challenges are resolved, state laws remain enforceable.

Our guidance: proceed with state-level compliance. Build and document your governance systems now. If federal preemption happens, you’ll meet or exceed those standards anyway. If states prevail, you’re already compliant.

The institutions that treat this as a reason to delay will be the ones scrambling when enforcement begins. The institutions that build robust AI governance frameworks now will be positioned regardless of how the federal-state battle resolves.

Your time is valuable. Your regulatory exposure is real. Your board expects you to have this handled.

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​And in case you missed it: LION Specialty's 2025 Insurance Year-in-Review

Last week we published our annual Year-in-Review edition.

We covered what we thought were the key trends in insurance and risk in 2025, based on our most read pieces. AI oversight, systemic cyber threats, nuclear verdict drivers and the home team defense for regional and mutual insurers, and a collection of our most read Friday Five and Wednesday Intelligence Boardroom Briefings. As you and your board are gearing up to execute your 2026 strategy in the coming weeks, there are several pieces you might want to read (or re-read!) this weekend!

​[Read the 2025 Year-in-Review Edition →]​

Want to protect yourself while the regulatory landscape sorts itself out?

We created a 5-day email course on D&O policy mistakes that leave executives personally exposed—including how AI governance failures can trigger coverage gaps most boards never see coming.

​»>Grab the BLUEPRINT here.​

Or if you want a direct conversation about how your current program measures up, we’ll review your existing D&O coverage through the same lens we use with every client.

​»>Book a coverage review here.​

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Stay Covered,

Natasha & Mark
Co-Founders and Managing Partners LION Specialty

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