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:
1. Regulatory Compliance:
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.
Stricter Standards: Insurance companies will be obligated to validate their AI systems to comply with the new federal standards, potentially requiring extensive audits and modifications to existing systems.
Increased Accountability: There is a likelihood that insurers will face heightened responsibility for the outcomes of their AI systems, thus necessitating improved monitoring and governance structures.
2. Data Privacy and Security:
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.
Enhanced Data Protection: The executive order is likely to emphasize data privacy and security, prompting insurers to make substantial investments in stronger data protection measures.
Transparency in Data Usage: Insurers may find it necessary to enhance transparency regarding their data collection, storage, and utilization practices, especially when AI participates in processing this data.
3. Ethical AI and Bias Mitigation:
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.
Reducing Bias: The P&C and L&A sectors will need to focus on identifying and mitigating bias in their AI systems, to guarantee equitable treatment for all customers.
Ethical Decision-Making: Insurers may receive encouragement or be mandated to integrate ethical considerations into their AI decision-making processes.
4. Innovation and Competitiveness:
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.
Stimulating Innovation: Although restrictions can sometimes hinder innovation, well-defined guidelines and standards serve as a necessary framework for innovation. This encourages insurers to invest in AI development.
Maintaining Competitiveness: Insurers that effectively adapt to the new standards and responsibly employ AI are likely to gain a competitive advantage in the market.
5. Customer Trust and Transparency:
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.
Building Consumer Trust: Building a brand around the commitment to safe, secure, and trustworthy AI can enhance customer trust, increase loyalty, and diminish attrition.
Transparent AI Operations: Insurers may find it necessary to furnish comprehensive insights on how AI influences various operations including underwriting, pricing, claims processing.
6. Skill Development and Talent Acquisition:
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.
Need for Skilled Personnel: The insurance industry will need skilled personnel to implement, monitor, and govern AI systems in accordance with the new standards.
Ongoing Training: Insurers will be obliged to invest in ongoing training and development to keep their workforce up to date with the latest AI technologies and best practices.
Job Security: The executive order will address concerns related to job displacement due to AI, emphasizing the creation of new job opportunities and safety nets for affected workers.
7. Operational Efficiency:
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.
Streamlining Operations: Adoption of AI in line with the new standards can lead to enhanced operational efficiency and generate long-term cost savings.
Challenges in Implementation: It is important to acknowledge that transitioning to compliant AI systems may initially present challenges and require significant investments.
8. Risk Management:
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.
Enhanced Risk Assessment: With secure and trustworthy AI, insurers can improve their risk assessment and pricing models, leading to improved financial stability.
Managing AI-Related Risks: It is imperative for insurers to formulate strategies for handling AI-related risks, encompassing potential system failures and cybersecurity threats.
9. Ethics and Governance:
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.
Establishing Ethical Framework: Insurers will need 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 technologies, ensuring that they are used in accordance with ethical standards and societal values.
10. Government Adoption of AI:
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.
Guidelines for Agencies: Federal agencies will receive clear guidelines on how to responsibly deploy and use AI technologies.
Efficient Public Services: The use of AI in government services is expected to become more efficient and effective, improved delivery of public services.
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.