Global law firm Kennedys has shed light on the potential benefits and risks that artificial intelligence (AI) brings to the insurance sector in its Global Forecast 2024: Evolving Insurance Risks report. While AI offers advantages such as improved risk assessment and streamlined claims processing, it also presents novel challenges. One of the highlighted risks is the use of AI-generated deepfake images to support fraudulent insurance claims. Additionally, Kennedys identifies ‘deglobalisation’ and biodiversity loss as emerging issues for insurers to address.
The changing landscape of insurance risks
Kennedys’ report emphasizes that environmental, social, and governance (ESG) concerns, evolving technologies, geopolitical factors, and claims inflation remain top priorities in the insurance industry. The report acknowledges that risks previously discussed, such as supply-chain disruptions, climate change, and cyber breaches, still persist. However, it underscores the evolution and diversification of risks in these areas.
AI in insurance: Benefits and risks
The adoption of AI in the insurance sector offers significant advantages. AI enables insurers to access more and higher-quality data, resulting in improved risk assessment for underwriting. This, in turn, allows for customized pricing and coverage options. Moreover, AI can streamline the claims process, leading to quicker claims payouts.
1. Failure of AI: This includes both human and technological failures, such as errors in AI algorithms or system malfunctions.
2. Malicious Use of AI: Third parties can exploit AI for nefarious purposes, including fraud or data breaches.
3. Data Issues: Challenges related to the quality and integrity of data used by AI systems can affect insurance outcomes.
Unique challenges for the insurance industry
The report highlights that the potential harms stemming from AI do not neatly align with existing insurance lines. Examples of unexpected challenges include claims arising from AI’s unexpected performance, such as deepfake fraud attempts, incidents involving cleaning robots causing accidents, or self-driving car accidents.
Regional variations in priorities
Kennedys’ partners from different regions expressed varying concerns. In the UK, the shifting regulatory landscape was the foremost worry, while North America prioritized concerns related to automation and AI. In Europe, the Middle East, Africa, and Latin America, climate change was identified as the primary challenge for insurers. In the Asia-Pacific region, cyber-attacks took precedence.
Addressing the accelerating pace of change
John Bruce, a partner at Kennedys, emphasized that the global risk environment for the insurance sector is constantly evolving. The report underscores the need for insurers and their legal advisors to anticipate and navigate new risks efficiently as the pace of change accelerates.
The rise of AI in the insurance industry presents both opportunities and challenges. While AI can enhance risk assessment and streamline claims processing, it also introduces new and complex risks that insurers need to navigate. Adaptation and proactive risk management will be essential for the industry to thrive in this evolving landscape.
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