Governance and Underwriting in the Age of AI: A Dual Challenge for Insurers
Artificial intelligence has become deeply embedded in the insurance sector, transforming underwriting, claims handling, and customer service. As insurers integrate AI into their operations, they face a dual challenge: managing their own use of AI within evolving regulatory frameworks, and underwriting the risks posed by AI adoption across the broader economy.
Regulatory approaches vary significantly. The EU’s AI Act, effective August 2024, introduces a risk-based classification system with strict obligations for high-risk applications, including those used in life and health insurance. Its extraterritorial scope means insurers outside the EU may still be affected. Meanwhile, the UK has adopted a principles-based model, relying on sector regulators and existing laws, with formal legislation expected in 2026.
AI use spans a spectrum of risk. Internal tools for productivity pose minimal exposure, while customer-facing applications – such as automated claims processing or AI-driven decision support – carry greater legal, ethical, and reputational risks. Key concerns include algorithmic errors, bias, data breaches, informed consent, and accountability for AI-driven decisions. Hyper-personalization also threatens traditional risk pooling, potentially excluding high-risk individuals and undermining the core value of insurance.
Liability insurers are particularly exposed. Claims arising from AI creation, deployment, or use are inevitable, yet many existing policies – across professional indemnity, product liability, D&O, cyber, and employers’ liability – neither explicitly exclude nor affirmatively cover AI-related risks. This “silent AI” exposure creates uncertainty and mirrors the early evolution of cyber risk coverage. Bespoke AI products, exclusions, and sub-limits are already emerging, with clarity in policy wording becoming essential.
Responsible AI adoption demands proactive governance, strategic risk management, and regulatory engagement. Insurers must prepare for a future where AI is central to both operational efficiency and liability exposure – balancing innovation with resilience and trust.
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