The White House's Executive Order on Safe, Secure, and Trustworthy AI aims to establish guidelines for responsible AI implementation across industries, including insurance. It mandates regulatory compliance, data privacy, ethical and unbiased AI systems, fostering innovation while mitigating risks. Insurance companies must adapt by enhancing governance, transparency, skilled workforce development, operational efficiencies, and risk management. While posing initial challenges, embracing the standards can boost customer trust, drive innovation, maintain competitiveness, and ensure the ethical deployment of AI for improved services and financial stability.
The extensive evolution of AI and Gen AI has blurred the difference between reality and augmented reality. Preserving the integrity of artificial intelligence and machine learning and Gen AI along with fostering innovation has called for the implementation of appropriate regulation. It is especially crucial in heavily regulated sectors, such as healthcare, banking, financial services, and insurance.
To tackle the situation, the White House has recently issued a groundbreaking Executive Order. This order enables the United States to capitalize on the potential benefits of artificial intelligence while mitigating the associated risks.
Highlights of the Executive Order:
The Executive Order on Safe, Secure, and Trustworthy Artificial Intelligence aims to establish a strong framework that can guide the implementation of responsible AI.
As expected, the order has significant implications for all industries including insurance.
Let’s see the various ways it is going to affect the insurance sector.
1. Regulatory Compliance
EXAMPLE – Property and Casualty (P&C) insurers, who are using AI for claims processing, will need to check if their system:
- Complies with the new federal standards.
- Can provide documentation and evidence to regulatory authorities.
IMPLICATIONS: Due to a strong regulatory environment, insurance companies will face more stringent compliance demands. Consequently, it will increase expenditure in compliance and governance.
- Stringent Standards – To comply with the new federal standards, insurance companies will be required to validate their AI systems. It will call for extensive audits and modifications to existing systems.
- Increased Accountability – There is a high probability of insurers facing heightened responsibility for the outcomes of their AI systems. It will result in improved monitoring and governing structures.
2. Data Privacy and Security
EXAMPLE – A Life and Annuities (L&A) insurer using customer health data to estimate policy rates. In response to the new standards, the insurer will be obliged to enhance its data security measures to protect sensitive information.
IMPLICATIONS: Insurers will prioritize data protection which will subsequently increase cost. However, it will also strengthen customer trust.
- Enhanced Data Protection – More emphasis on data privacy and security which will prompt insurers to expand the expenditure on fortified data protection measures.
- Transparency in Data Usage – Insurers will need to increase transparency in data collection, storage, and utilization practices. It becomes even more important when AI is involved in processing this data.
3. Ethical AI and Bias Mitigation
EXAMPLE – A P&C insurer discovers unintentional algorithm bias within its AI-based underwriting system that would adversely affect certain demographic groups. To conform to the Executive Order, the company must rectify this issue at once.
IMPLICATIONS – Insurers will need to acquire tools and implement practices aimed at detecting and mitigating bias within their AI systems. It will ensure impartial treatment for all customers.
- Reducing Bias – The P&C and L&A sectors will need to focus on identifying and eliminating bias in their AI system. It will guarantee equal treatment for all customers.
- Ethical Decision-making – Insurers will be either encouraged or mandated to integrate ethical considerations into their AI decision-making process.
4. Innovation and Competitiveness
EXAMPLE – An L&A insurer embraces the new AI standards to develop innovative, personalized insurance products to gain a competitive edge in the industry.
IMPLICATIONS – Insurers that proactively adapt to new standards and leverage AI responsibly can boost their market standing and drive innovation.
- Stimulating Innovation – There is no doubt that restrictions create barriers to innovation. Still, well-defined guidelines and standards serve as a framework for innovation. It encourages insurers to invest in AI development.
- Maintaining Competitiveness – Insurers, effectively adapting to the new standards and employing responsible AI, are more likely to gain an edge over their competitors.
5. Customer Trust and Transparency
EXAMPLE – A P&C insurer providing its customers with concise details regarding AI’s role in claims processing. This in turn enhances transparency and builds trust.
IMPLICATIONS – An emphasis on transparency, effective communication, and social responsibility. All this will eventually result in enhanced customer trust, customer retention, and business growth.
- Building Consumer Trust – Building a brand around safe, secure, and trustworthy AI can boost customer trust and loyalty along with reducing attrition.
- Transparent AI Operations – Insurers may find it necessary to offer insights on how AI influences various operations including underwriting, pricing, and claims processing.
6. Skill Development and Talent Acquisition
EXAMPLE – An L&A insurance company invests in training programs to upskill its workforce in AI ethics & secure AI practices. The company aims to ensure compliance with the Executive Order.
IMPLICATIONS – The insurance sector will require attracting a workforce that is well-versed in AI, ethics, and cybersecurity.
- Need for Skilled Personnel – The insurance sector will push for skilled personnel to implement, monitor, and govern AI systems that conform to the new standards.
- Ongoing Training – Insurers will be obligated to increase their expenditure on ongoing training & development to keep their workforce updated with the latest AI technologies and best practices.
- Job Security – The Executive Order will address concerns regarding job displacement due to AI. Moreover, it will emphasize the creation of new job opportunities and safety nets for affected workers.
7. Operational Efficiency
EXAMPLE – A Property and Casualty insurer which has incorporated secure and trustworthy AI systems for risk assessment. The goal of the company is to reduce claims processing times and enhance operational efficiency.
IMPLICATIONS - Although compliant AI systems entail initial costs and challenges, the long-term benefits, like increased operational efficiency and cost savings, outweigh the downsides.
- Streamlining Operations – Implementation of AI which is in line with the new standards and can lead to increased operational efficiency. Besides, the new system can save costs in the long run.
- Challenges in Implementation – Transition to compliant AI systems need significant investments and may pose several challenges.
8. Risk Management
EXAMPLE – An L&A insurer which uses AI to boost risk modeling so that the company can get more accurate life expectancy predictions and better financial stability.
IMPLICATIONS – Effective risk management via secure and trustworthy AI will result in improved financial stability. However, insurers will need to navigate and mitigate the risks involved in AI deployment.
- Enhanced Risk Assessment – By deploying secure and trustworthy AI, the insurer can improve their risk assessment and pricing models. It will lead to improved financial stability.
- Managing AI-related Risks – Insurers must handle AI-related risks which can encompass potential system failures and cybersecurity threats.
9. Ethics and Governance
EXAMPLE – A Property and Casualty insurer who is deploying an AI-based underwriting workstation. The goal of the company is to enhance the efficiency of underwriters.
IMPLICATIONS – On one hand, AI recommends engines for actions, risk assessment, and prioritization which further improve the efficiency of underwriters. On the other hand, the compliance team of the company needs to maintain ongoing vigilance to ensure that the usage of AI aligns with the standards and regulations.
- Establishing Ethical Framework – Insurers will be required to establish ethical frameworks to guide their use of AI ensuring responsible practices.
- Governance and Oversight – There will be increased governance and oversight of AI to make sure that it meets the ethical standards and societal values
10. Adoption of AI by the Government
EXAMPLE – A Property and Casualty carrier which offers insurance for regulated products, such as auto and home. The regulatory body, a government entity overseeing these products, prescribes the standards the carrier must adhere to.
IMPLICATIONS – Government entities will provide clear guidance on AI usage for regulated products.
- Guidelines for Agencies – Federal agencies will receive clear guidelines regarding responsible deployment and use of AI technologies.
- Efficient Public Services – The use of AI in government services will become more efficient with improved delivery of public services.
To sum up, the Executive Order on Safe, Secure, and Trustworthy Artificial Intelligence will have far-reaching implications in the P&C and L&A insurance sectors. While it poses challenges in terms of compliance, data protection, and bias mitigation, it also presents opportunities for innovation, operational efficiency, and building customer trust. The success of insurers in adapting to these changes will depend on their commitment to responsible AI practices.
At Coforge, we value and practice responsible use of Cognitive and AI. We have been successfully collaborating with our clients to construct their AI frameworks and Centre of Excellence. Keeping up with this custom, Coforge has launched an innovative AI framework called Quasar that empowers organizations in scaling their AI capabilities responsibly.
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