• Articles
  • September 2023

AI is Already Reshaping the Insurance Industry: How should regulators respond?

African American man points at a computer screen displaying analytics and data
In Brief
The Geneva Association recently published a comprehensive report on the use and regulation of AI in the insurance industry. AI is a key part of the digital transformation of insurance, the report says, and its associated risks are already familiar to insurers. 

“AI is a vital component of the digital transformation of the insurance industry,” the report states. “It has the potential to provide significant benefits to consumers, firms, and society as a whole, and contributes to improving the availability, affordability, and accessibility of insurance.”

Those benefits do come with risks, the report noted, including the increased potential for bias, unfair discrimination, and exclusion, as well as data security and liability risks.

The Geneva Association offered several approaches to address these risks, and stressed that nearly every concern also exists in traditional insurance.

“These concerns can be addressed by enhancing transparency and governance frameworks around the use of data by AI in consumer-facing applications.” - Geneva Association

Here are some key takeaways from the report: 

  • Agreeing on a definition of AI: Acknowledging that “AI” can cover a wide range of concepts and applications, the report offered its own definition of the term: “The ability of machines to conduct tasks requiring human intelligence, including learning, reasoning, problem-solving, and natural language processing (NLP), based on the processing of vast amounts of data for decision-making while learning and adapting through pattern recognition and analysis.”

  • AI can address protection gaps: Because AI allows insurers to examine risks on a more granular level, it can facilitate coverage of risks that were previously deemed too difficult to insure.

  • AI benefits for customers: AI has the potential to offer customers a more efficient purchasing process; tailored and transparent product offerings; more personalized products; and lower premiums due to AI-related cost savings for insurers. 

  • AI benefits for insurers: By incorporating AI into their business processes, insurers can reach underserved populations, improve claims handling, strengthen fraud detection, and achieve efficiencies and lower costs. 
A human hand touches a robotic hand
Gen.A.I.rational Wealth: What ChatGPT and other generational AI could mean for the insurance industry
  • The transformation of underwriting: AI can rapidly process and analyze vast amounts of data, enabling underwriters to make more accurate and efficient risk assessments.

  • Moving from causality to correlation: Classical underwriting directly links an individual’s health history and habits to their likely outcomes for morbidity or mortality. AI, on the other hand, is efficient at pinpointing correlations – two or more risk factors that move together. “While there may not be a causal link between the correlations found, their predictive value is precise and powerful. Underwriting based on AI is thus able to take more variables and the complex interactions between them into account.”

  • AI-related risks: Again, while not dissimilar to the risks connected to traditional underwriting, AI-assisted underwriting can raise concerns. These include bias and indirect discrimination, the accuracy and quality of data fed to AI applications, and the potential for excessive price differentiation as AI enables insurers to offer more individualized risk assessments.

  • Regulatory response: The report explores how insurance-specific regulations are addressing AI-related risks in Australia, China, the European Union, Japan, Singapore, the U.K., and the U.S. 

The report concludes by offering recommendations to policymakers about how to define AI, apply existing regulations, consider the specific applications of AI in insurance, and collaborate internationally to develop use-case-specific guidance that can apply across jurisdictions and enable insurers to navigate the challenges and opportunities presented by AI.

˿ƵAPP is a long-standing partner and supporter of the Geneva Association. We fully endorse the Association’s mission to advance the work of the insurance industry in building more resilient and prosperous economies and societies as we work to advance ˿ƵAPP’s own purpose to make financial protection accessible to all.

More Like This...

Related Solutions

Meet the Authors & Experts

Isin Ozaksoy
Isin Ozaksoy

Vice President, Analytics Quality & Ethics/Global D&A