AI in Insurance: Innovation, Exposure, and the New Frontier of Claims and Liability
The Brief
Legal advisors should read this article to:
- Understand emerging litigation risks and regulatory trends.
- Assess the importance of explainability and human oversight in AI systems.
- Prepare for ethical governance and professional duty challenges.
Insurance advisors should read this article to:
- Gain insight into AI’s impact on claims efficiency and risk.
- Stay ahead of regulatory and compliance changes.
- Strengthen ethical leadership and market trust.
Executive Summary
As artificial intelligence (AI) reshapes the insurance landscape, insurers face a growing tension between automation and accountability. While AI offers unprecedented speed and efficiency in claims processing, it also introduces new risks, ranging from litigation over biased algorithms to regulatory scrutiny of exaggerated AI capabilities.
This article examines the need for insurers and insureds to manage the risks of a transforming liability landscape, emphasizing the importance of explainable systems, ethical oversight, and resilient governance frameworks.
Introduction: The Double-Edged Sword of Automation
The global AI-in-insurance market is expected to reach between $16 billion in 2028 and approximately $88 billion by 2030. Claims automation is projected to be the fastest-growing segment.
Automation is evolving the claims process in property and casualty lines, with tools like drones, image-recognition software, and predictive models. These technologies can speed up traditional claims processes, but barriers such as legacy systems and high implementation costs remain.
Smarter, Faster Claims Processing
AI offers unmatched speed in document review and triage. For instance, a reinsurance company has explored a Flight Delay Compensation tool that automatically pays claims for flight delays. Another insurer uses AI to automate claims processing during extreme weather events, significantly reducing turnaround times.
Strengthening Expert Testimony and Litigation Support
AI enhances expert analysis in litigation by providing tools for 3D visualizations and rapid keyword searches. However, experts caution that AI cannot replace firsthand observation or professional judgment.
Emerging Liability Under Financial Lines
Corporate misrepresentations of AI capabilities, known as AI-washing, are drawing regulatory and litigation attention. Companies exaggerating their AI capabilities may face allegations of misleading shareholders.
Ethical Governance and Professional Duty
Ethical responsibilities surrounding AI have raised concerns among healthcare organizations and have led to proposed safeguards for transparency and data disclosure. The National Association of Insurance Commissioners (NAIC) has also created a Model Bulletin for the use of AI systems by insurers.
The Deepfake and Fraud Frontier
Generative AI is rapidly expanding the scope of uncovering potential fraud. AI-driven compliance monitoring can help mitigate risks associated with cross-border fraud and anti-money laundering breaches.
Conclusion: Ethical Leadership as Market Differentiator
As AI automation becomes more prevalent, insurers that demonstrate responsible use of AI and maintain transparency will distinguish themselves in the marketplace. Combining forensic accounting, digital forensics, and behavioral science can deepen understanding of the technical and ethical aspects of AI adoption.
