The rapid and extensive evolution of AI and GenAI is such that differentiating between reality and augmented reality becomes increasingly challenging. Preserving AI and GenAI’s integrity and fostering innovation necessitates the implementation of appropriate regulation. This is especially crucial in heavily regulated sectors such as healthcare, banking, financial services, and insurance. The White House has recently issued a groundbreaking Executive Order, designed to propel the United States to the forefront of capitalizing the potential benefits of artificial intelligence while effectively mitigating the associated risks.
Highlights of the executive order are as follows:
The Executive Order on Safe, Secure, and Trustworthy Artificial Intelligence aims to establish a strong framework to guide the responsible, secure, and trustworthy development and implementation of AI. This has significant implications for the insurance sector including:
Example: Property and Casualty (P&C) insurer using AI for claims processing will need to ensure its system complies with the new federal standards and can provide documentation and evidence to regulatory authorities.
Implication: Given the insurance sector’s strong regulatory environment, insurance companies will face more stringent compliance demands, resulting in increased investments in compliance and governance.
Example: Suppose a Life and Annuities (L&A) insurer using customer health data to determine policy rates. In response to the new standards, the insurer will be obliged to enhance its data security measures to protect sensitive information.
Implication: Insurers will be compelled to prioritize data protection, potentially resulting in increased costs while simultaneously strengthening customer trust.
Example: A P&C insurer discovers unintended biases within its AI-based underwriting system that adversely affect certain demographic groups. In response to the executive order, the company must promptly rectify this issue.
Implication: Insurers will need to allocate resources to acquire tools and implement practices aimed at detecting and mitigating bias within their AI systems, thereby ensuring impartial treatment of all customers.
Example: Imagine an L&A insurer embracing the new AI standards to develop innovative, personalized insurance products, gaining a competitive advantage in the industry.
Implication: Insurers that proactively adapt to the new standards and leverage AI responsibly can enhance their market standing and drive innovation.
Example: Visualize P&C insurer that provides its customers with clear, concise details regarding AI’s role in claims processing, thereby enhancing transparency, and building trust.
Implication: An emphasis on transparency, effective communication and social responsibility will result in customer trust and loyalty, which is crucial for customer retention and business growth.
Example: Consider a L&A insurance company invests in training programs to upskill its workforce in AI ethics and secure AI practices, ensuring compliance with the executive order.
Implication: The insurance sector will need to attract and nurture talent well-versed in AI, ethics, and cybersecurity.
Example: Imagine a Property and Casualty insurer that embraces secure and trustworthy AI systems for risk assessment, thereby reducing claims processing times and enhancing operational efficiency
Implication: Although the adoption of compliant AI systems might entail initial costs and challenges, the long-term benefits include increased operational efficiency and cost savings.
Challenges in Implementation: It is important to acknowledge that transitioning to compliant AI systems may initially present challenges and require significant investments.
Example: An L&A insurer uses AI to enhance its risk modeling, leading to more accurate life expectancy predictions and better financial stability.
Implication: Effective risk management via secure and trustworthy AI can lead to improved financial stability, but insurers must also navigate and mitigate risks linked to AI deployment.
Example: Imagine a Property and Casualty insurer introducing an AI-based underwriting workstation that offers recommendations to enhance underwriters' efficiency.
Implication: While effective use of AI as a recommendation engine for actions, risk assessment, prioritization can lead to improved underwriter efficiency, productivity and risk assessment quality, the organization's compliance team will need to maintain ongoing vigilance to ensure AI usage aligns with standards and regulations.
Example: A Property and Casualty carrier that offers insurance for regulated products such as auto and home insurance. The regulatory body overseeing these products is a government entity that prescribes the standards the carrier must adhere to.
Implication: Government entities will provide clear guidance on the use of AI for regulated products and interactions with the governing bodies using AI technology.
In conclusion, the Executive Order on Safe, Secure, and Trustworthy Artificial Intelligence will have far-reaching implications for 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 and their ability to navigate the evolving regulatory landscape.
At Coforge, we have always championed responsible use of Cognitive and AI. We have been collaborating with our clients to construct their AI frameworks and Center of Excellence. In line with our commitment to furthering Cognitive and GenAI for Enterprises, Coforge has made substantial investments in the development of an AI Framework called Quasar. This initiative aims to assist organizations in scaling their AI capabilities responsibly.
For more information, visit: https://www.coforge.com/services/cognitive-gen-ai or write to insurance@coforge.com