New AI Regulations for Life Insurance

If you aren’t living under a rock, you’ve probably heard of the emergence of various new technologies, like generative AI ChatGPT, Google Cloud Learning Machine, IBM Watson, NVIDA Deep Learning AI Software, and many more. These highly acclaimed artificial intelligence programme have been used for everything, from writing articles, processing data, and creating business strategies based on market research. These tasks, which would otherwise require the intelligence of a human, are quickly becoming passed off to the role of AI (artificial intelligence) software. And what about businesses? About insurance? We’ve talked before about how AI is shaping the insurance industry, but it’s starting to become so much so that, worldwide, AI models and processes are needing to be regulated.

In February 2023, the Colorado Division of Insurance suggested new rules that would call for all licensed life insurers in the state to offer an inventory of the AI models that they use in underwriting, which would require insurers to adhere to stricter regulations on how algorithms are deployed. This is done in an effort to ensure no one is discriminated against. And while this is happening in the States, we are also seeing the implementation and adoption of AI in Canada’s insurance industries, too.

In this article, we will address recent AI regulations, how AI will perform in the insurance industry (and in life insurance), how it is used to underwrite, and potential risks and benefits.

What is AI’s role in the insurance industry?

AI has evidently brought revolutionary change to many different industries, including the insurance sphere. In fact, its introduction is not recent. It has been implemented for several years now. Prior to its emergence, insurance would be consumed with plenty of paperwork, long meetings, an extensive claims process, and months on months of processing data just to come to a decision.

AI has introduced automation, taking otherwise long, time-consuming processes and condensing them into quick tasks. The initial fear of AI was that its introduction was to replace human workers, but instead AI has served to take on the more baseless tasks and free up room for humans to handle matters that required deeper thought. For the insurance industry, this means the ability to handle more claims at the same time, price insurance more accurately while also lowering risks and potential fraud, and just generally reducing business costs.

So, in short, AI in the insurance industry can:

• Ensure better, more streamlined customer service.
• Promote quicker and easier claims processing.
• Assess risk, detect fraud, and mitigate human error easier.
• Ease the process of underwriting without human intervention.

Alongside the Colorado Division of Insurance’s decision to regulate AI use in insurance, the Government of Canada has also tabled the “Artificial Intelligence and Data Act” or AIDA to ensure that the design, development, and usage of artificial intelligence programmes must be safe and respect the value of all Canadians. This is less specific to insurance, but holds all businesses responsible for adhering to a new regulatory system that is designed to ensure that all AI innovation is developed in a positive direction and aligns with Canadian values.

How will AI be regulated in life insurance?

As it seems to be currently in the life insurance industry, regulations for artificial intelligence implementation are still very much so evolving and may vary from region to region and even country to country. However, there are some key areas that will likely be addressed further as time goes on:

• Transparency – Regulators may require life insurers to use AI systems that are easily explained and transparent. All decision-making processes and algorithms used by AI must be interpretable by humans, so policyholder scan explain decisions about how policies are made.
• Ethical usage – Regulation may guarantee that insurers always use AI ethically and ensure it aligns with societal values. This could include the adherence to specific guidelines for the usage of AI in underwriting, pricing decisions, and claims assessment.
• Data privacy/security – Since insurers deal with personal data, such as financial info and health records, regulations may mandate the implementation of stricter data privacy and security measures to protect client information.
• Bias – Some AI systems can be biased, which can result in discriminatory risk profiling. Life insurers may be required to ensure all AI systems are fair and unbiased. This may mean that data must be monitored to mitigate biases.
• Liability – Regulators may seek to establish liability frameworks when AI is used by life insurers to ensure that responsibility is determined if an AI system should cause harm or make a make mistake. Frameworks may also determine how insurers can be held accountable.
• Licensing/certification – Finally, there may be the introduction of a certification and licensing requirement for insurers to use certain AI systems. This could be used to ensure that insurers are adequately qualified to deploy and use AI.

These are mostly just suggestions, and it still is vastly uncertain how regulations around AI in the life insurance industry will end up being developed.

How is AI used to underwrite risk for life insurance?

AI is being increasingly used more and more in life insurance and in the insurance sphere to underwrite risk. In fact, major companies, like Aviva Canada, The Co-Operators, Crawford & Company, and more have a track record of using AI to streamline the underwriting process.

Essentially, underwriting is the usage of thousands and thousands of different statistics and kinds of data, which are used to gauge a policyholder’s risk profile. Underwriting, also called risk assessment, can also gauge the insurability of an individual.

Artificial intelligence has made leaps and bounds in its underwriting capabilities in recent years. It has also been known to accomplish speech recognition, decision-making, visual perception, and translation between languages. It has become a huge asset to the insurance community.

Key takeaways – AI ethics, AI in life insurance, & more

The insurance industry has been transformed by AI and will likely continue evolve with artificial intelligence implementation for decades to come. As artificial intelligence becomes increasingly commonplace, regulatory bodies will likely need to step up to implement restrictions and monitoring to ensure AI is used ethically and is not trained on any bias that would affect policyholders.

In life insurance, AI stands to improve underwriting processes, expedite claims, and price life insurance more accurately, which can help to reduce costs all across the board. With less operational expenses as well, this stands to benefit life insurance companies, softening the blow of hard market impacts.

For more information, or questions regarding Excalibur’s life insurance offerings, give us a call. If you’re ready to begin on your own comprehensive life insurance coverage, get a free quote today.