The report indicated that the EU's AI Act will serve as a benchmark for global AI legislation and regulation
The Global Insurance Law Connect (GILC) has published its inaugural report on AI.
The report, which culled insights from 18 countries about AI's impact on their insurance sectors, examined the changing dynamics of AI regulation and risk prediction and analysis. It determined AI has potential to enhance efficiency in many stages of the insurance process.
“AI has already become an essential part of our daily lives and is quickly making its way into the insurance sector. This trend is expected to continue as AI offers numerous benefits including faster claims processing, improved underwriting, innovative insurance products, streamlined administration processes, and more efficient chatbots”, explained Gillian Davidson, GILC chair and partner at Sparke Helmore.
The report highlighted AI’s rapid data analysis capability as a particular powerful asset for insurers.
“The use of AI can help insurers enter markets that may be challenging due to lack of lengthy loss histories for certain types of risks. AI can rapidly digest large volumes of data and produce more precise analytics, which can be useful in designing coverage for large-scale cyber incidents, for example”, Davidson said.
However, the report indicated that AI algorithms also displayed inherent biases and lack of transparency. This led to concerns over data privacy and ethics. Moreover, the risk of cyber-related events rose with the adoption of AI.
In line with the need to stay up-to-date on AI-specific regulations and laws, the EU’s upcoming AI Act will serve as a global benchmark, the report stated.
“The Australian government needs to ensure greater collaboration with the insurance industry to provide much-needed certainty around legal, regulatory, and voluntary AI frameworks, and provide a clear roadmap for their adoption. Otherwise, Australian insurers may be hesitant to embrace AI to its full extent”, said Jehan Mata, Sparke Helmore partner and cyber insurance leader.
In January, the government had released a response to public submissions to a paper about Supporting Responsible AI. The paper looked into the necessity of a mix of general, sector-specific, and self-regulation initiatives to back safe AI practices. The government expressed its intent to roll out mandatory safeguards for AI use in high-risk situations, either through modifying existing legislation or developed new AI-specific laws.
Effective this month, the government implemented an online safety code to mitigate risks associated with the use of search engines and to shield against generative AI risks.
The report also revealed that AI is being used for or is likely to be used for the optimisation of distribution models.
“We are likely to see a similar rapid expansion in the use of digital techniques, including smartphone apps that often involve AI, to distribute insurance policies. This trend will be especially beneficial in markets with low insurance penetration”, the report said.
Nonetheless, as the use of AI results in the processing of significant amounts of personal and largely sensitive information, insurers must have safeguards against data breaches in place, as well as processes to report and manage breaches. Insurers must also ensure that they are complying with national and international standards of data protection.
“For the Australian insurance industry, AI and generative AI technologies present significant opportunities and associated challenges. The use of predictive AI will need clear parameters and overarching guidance and preparedness to face the challenges across data privacy, ethics and bias in order for insurers to prevent financial, regulatory, legal, and reputational risks,” Mata said.
