Insurers grapple with AI ethics and regulations

As the US and Europe consider the use of AI by insurers, insurers and insurtechs are considering the ethics of AI applications in their businesses.

In the US, the NAIC, the association of state regulatory authorities, adopted it a model for using AI in December 2023, with 17 states now using this model and four more using their own guidelines. In July, the European Parliament adopted it AI Actwhich establishes a legal framework for the use of AI.

“AI can be very helpful – it has been very helpful and will be very helpful in the future to help speed up and get more information to the underwriter as opposed to an inexplicable black box sitting on the side. ,” said Jennifer Kyung, vice president, property and casualty insurance at USAA, a panelist on a webcast hosted by the Insurance Information Institute. “It’s very, very important for us to make sure that what we’re looking at is explainable and traceable.”

USAA has established a risk management model. MMG Insurance, founded in 1897, serves about 200,000 personal and commercial lines policyholders and is working on several use cases for AI technology, including data management, according to Matthew McHatten, president and CEO, who also spoke on the webcast.

“The ability to harvest data that is currently not useful or unstructured will become a price and process driver,” he said. “As we think about this and the reputational risk that is associated with it, how do we guide our expectations? We talk to consumers and regulators and it’s important to reverse engineer and be proactive and transparent about it. We have to admit how difficult this is. we will have to regulate”.

McHatten points to three areas where AI has potential for insurers – reducing friction in transactions, improving the customer experience, and improving data and processes.

In insurance and underwriting transactions, read-only medical and legal documents require a lot of time to handle and go back and forth with policyholders. Customers will hold insurers to the same standard they see from other industries, McHatten said.

“It’s a better opportunity to have the ability of AI to sit with them, to have more knowledge about customers at the time of the transaction, which leads to a personal approach and positive results,” he said. “There is significant potential there for consistency, accuracy and a better customer experience.”

In addition, faster response time and proactive attention to customer needs are very promising areas for AI, according to McHatten. Ultimately, harnessing data keeps insurance products “competitive and affordable,” he said, along with reducing risk. “All the information that’s in a claim file could make us better and more efficient in how we look at risk. This is just one example of uncorrelated behavioral data that is out there that we will likely be able to leverage to offer more competitive products in the future.”

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Munich Re, for its part, has both a quantitative and a qualitative approach to AI, according to Iris Devriese, underwriter and AI liability manager at the reinsurer. Munich Re uses a case-specific model and approach, she said. Quantitatively, the firm considers how often the AI ​​makes mistakes and what happens if it does. Qualitatively, performance measurement and monitoring, along with bias and fairness audits, can help management and produce robust governance, according to Devriese.

“We have a very holistic and in-depth approach to each model that goes a little further than the market standards,” she said. Munich Re itself offers an insurance-backed performance guarantee for AI providers.

The NAIC’s AI oversight model includes provisions to control for discriminatory bias, notes Mike Fitzgerald, an insurance consulting consultant at SAS, a provider of data analytics services. In general, he added, regulators will monitor insurers’ building and use of AI systems, as well as their use of third-party AI systems. “The bottom line is this, it doesn’t matter where you write insurance on earth, this AI regulation is going to hit you somehow,” he said.