AI: Opportunities and Risks for the Insurance Industry

Insurers Struggle to Keep Up with Rapid Rise of AI Usage

The continuous evolution of artificial intelligence (AI) across various business sectors has prompted stakeholders, including insurers, brokers, and lawyers, to contemplate potential risks and exposures associated with the application of the technology. The focus is currently on generative AI and the production of “deepfakes”. However, commercial insurance claims connected to this growing technology are yet to reach a significant volume that would demand insurers to revise policy language or advocate widespread exclusions.

Concurrently, governments are setting boundaries for AI, and some businesses have initiated affirmative AI coverage endorsement. “It will take time for the market to mature on these points for the exposures to be identified,” says Julian Miller, a partner at DAC Beachcroft LLP, who has helped design insurance policy terms.

Possible Risks Posed by AI

Jaymin Kim, senior vice president of the cyber risk practice at Marsh LLC, sees the emergence of new aspects of current risk categories with the advent of AI, and not entirely new categories of insurable hazards. Ms. Kim leads the emerging technologies department within Marsh’s global cyber practice and is tasked with determining if new categories and insurable risks related to emerging technologies, including AI, are coming to light.

Over the past 15 months, during which high-profile AI technologies have been introduced, “companies across virtually every industry have been reaching out to talk about AI,” a majority of which is largely linked to generative AI. This technology utilizes computational systems running on deep learning techniques to create unique content.

Understanding AI Exposures

Organizations are evaluating how AI may impact coverages or prompt claims. Bob Wice, Head of Underwriting Management, Cyber and Tech, at Beazley PLC, specializes in writing standalone cyber insurance policies. He believes the focus should be on determining additional exposure to be covered affirmatively and any new exposure that hadn’t existed before, brought about by artificial intelligence and generative AI.

According to Elisabeth Case, global product manager, cyber, for Liberty Mutual Insurance Co, AI should be viewed as a tool rather than a new form of existence. She explains that AI-related claims may fall under property/casualty or specialty lines.

The Impact of AI in Insurance Industry

Marshall Gilinsky, a shareholder for policyholder law firm Anderson Kill P.C., suggests that the claims likely to result from AI usage are currently covered under existing policies. “It goes back to the exposures and the risks. They’re already there; it’s just whether AI increases their frequency and effectiveness, and therefore, their number,” adds insurer attorney Meghan Dalton.

As per Matt Harrison, executive director, casualty, for Gallagher Re, AI might not introduce new risks, but it alters the frequency and severity of existing risks. For instance, a doctor using AI might improve their diagnosis rate but due to potential biases in the AI’s training data, under-diagnose or misdiagnose some diseases. “Misdiagnosis was always a risk. AI just changed it,” Harrison explained.

AI: Increasing Risks or Triggering Claims?

Technical Director of Special Lines at Zurich North America, Michelle Fesi, warns that biases from AI training can lead to exposures, with trained models perpetuating prejudices related to gender, race, religion, and other social factors, potentially leading to legal or reputational consequences.

Coming to clarity in the industry, Michelle Chia, Chief Underwriting Officer, Cyber, Americas, for Axa XL, insists that policies must articulate clearly whether AI-related risks are included or not. In a similar move, Coalition Inc. introduced an artificial intelligence affirmative endorsement to clarify what is covered under their U.S. surplus lines and Canadian cyber insurance policies.

With the commercial insurance sector accommodating artificial intelligence, AI’s acceptance and penetration are growing among the public. A study by Insurity LLC, revealed that while 35% of consumers are in favor of AI use in fraud detection and claim management, 50% opposed its use in claims management, indicating some reluctance towards AI.