Executive Summary: With over 70% of insurers planning to deploy gen-AI tools over the next two years, AI promises much, and the keen adopters will likely be rewarded – but it’s a path that must be navigated carefully, keeping a close eye on regulatory compliance in markets across the globe, says Erez Barak, chief technology officer at Earnix.
The use of artificial intelligence has grown significantly in 2024, and regulators have taken notice, increasing their oversight globally.
It’s a powerful tool for the insurance industry, but companies must balance innovation with regulatory compliance.
A recent survey by Earnix found that 51% of respondents said their company had to pay a fine or issue refunds due to errors in using AI in the past year.
The survey also found that more companies plan to spend more time on regulatory compliance in 2025 to avoid such issues and ensure their use of AI aligns with guidelines.
Interestingly, insurers in Europe and Australia may already be ahead of the curve, with a majority–68%—saying they are spending more or significantly more time on regulatory compliance this year compared to last year, versus 62% of North American firms reporting the same.
This could be due to Europe’s increasingly complex regulatory landscape, with the Solvency II Directive imposing extensive requirements for capital management, risk management and reporting. As a result, insurers in Europe and Australia may be better positioned to implement new technology to help with compliance.
That said, the rapid pace of change in AI what it’s barely possible for most regulators to prescribe rules. As a result, many are taking a principles-based approach instead.
For example, the National Association of Insurance Commissioners (NAIC) Model Bulletin: Use of Artificial Intelligence Systems by Insurers takes a principles-based approach, which has been endorsed by the insurance industry. Adopted on Dec. 4, 2023, it encourages testing for unbiased outcomes, but it does not mandate it.
This sets the stage for heightened awareness, while not being overly prescriptive, highlighting the need for continuous adaptation as AI technology evolves.
The ethical use of AI is a hot topic in the insurance sector. The European Commission’s advisory body has identified seven requirements for trustworthy AI, including human oversight, technical robustness, privacy, transparency, diversity, fairness, as well as societal and environmental well-being.
These guidelines are helpful in shaping internal processes around AI use. The more examples that exist, particularly those openly discussed and shared, the stronger these practices will become.
Significantly, these all require human intervention, since AI can’t yet replace human employees; it’s best used to complement employees’ strengths.
This concept, called “human-centric AI,” involves using AI to augment human capabilities by automating tasks, boosting efficiency and enabling employees to do their jobs better. Human-centric AI acknowledges the importance of human involvement throughout the AI lifecycle.
It emphasizes that regulation should be clear and provide direction for businesses.
“Explainability” will be key for insurers working proactively with regulators to explain their AI outputs. Explainability provides businesses with increased options
* What are the potential benefits of AI in the insurance industry?
## Interview: Navigating the AI Landscape in Insurance
**Host:** Welcome back to the show. Today, we’re discussing the increasing use of artificial intelligence in the insurance industry. Joining us is [Guest Name], an expert on insurance technology and regulations. [Guest Name], thanks for being here.
**Guest:** It’s a pleasure to be here.
**Host:** As we know, AI is rapidly transforming many industries, and insurance is no exception. A recent survey by Earnix found that over 70% of insurers plan to deploy generative AI tools in the next couple of years. This is incredibly exciting, but it also raises some concerns. Can you tell us about the potential benefits and risks of AI in insurance?
**Guest:** Absolutely. AI offers tremendous opportunities for insurers. It can streamline processes, improve risk assessment, personalize customer experiences, and even detect fraud. However, the rapid development of AI brings challenges, particularly around regulation. As the Earnix survey highlighted, over 50% of companies have faced fines or issued refunds due to AI errors in the past year, highlighting the need for careful implementation and robust oversight. [[1]](https://content.naic.org/article/naic-members-approve-model-bulletin-use-ai-insurers)
**Host:** That’s a stark reminder that innovation needs to be balanced with responsibility. You mentioned regulations. We’ve seen the NAIC adopting a model bulletin on AI use by insurers. How significant is this development, and what can we expect to see in terms of regulatory oversight in the future?
**Guest:** The NAIC’s bulletin is a crucial step towards ensuring responsible AI adoption in the industry. It provides much-needed guidance on issues like algorithmic transparency, fairness, and data privacy. As AI evolves, we can expect regulators globally to become more proactive, issuing specific guidelines and potentially even imposing stricter requirements.
**Host:** The Earnix survey also noted regional differences in regulatory awareness. Insurers in Europe and Australia seem to be ahead of the curve when it comes to dedicating resources to AI compliance. Why do you think that is?
**Guest:** Europe, particularly with regulations like Solvency II, has always been at the forefront of financial regulations. Their complex regulatory landscape has pushed insurers to be more proactive about compliance, and that preparedness seems to be extending to AI. It’s a valuable lesson for the rest of the world.
**Host:** This is a constantly evolving landscape. What advice would you give to insurance companies looking to leverage the power of AI while staying compliant?
**Guest:** My advice would be three-pronged. First, prioritize ethical and responsible AI development. Second, stay informed about the latest regulations and guidelines. And third, invest in robust compliance mechanisms and dedicated expertise to ensure responsible and sustainable AI integration.
**Host:** Sound advice. [Guest Name], thank you so much for sharing your insights with us today.
