AI could create issues and solutions for insurance going forward

Artificial Intelligence will create exciting opportunities as well as new issues that the industry is not prepared for yet, according to experts.

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Zahidi (L) and Klint (R) at the report launch.

Artificial intelligence (AI) is an amazing tool that will create new opportunities for the insurance industry to become more profitable and streamlined; however, it will also change the industry and create new issues around cybercrime and terrorism that are currently unimaginable.

These words come from Carolina Klint, Chief Commercial Officer at Marsh McLennan, who spoke at the World Economic Forum’s (WEF) Global Risks Insights 2024 report launch in London last week.

Klint was speaking on a panel for the report launch alongside Saaida Zahidi, Managing Director, WEF, and John Scott, Sustainability Risk Officer at Zurich Insurance, on the report's key themes.

The report’s findings were separated into short-term (within the next two years) and long-term (over the course of the next decade) themes, with AI and cyber issues affecting both but being more likely over the next ten years. “Adverse outcomes of AI technologies” were rated the sixth most pressing risk, and “cyber insecurity” was rated eighth. “The nexus between falsified information and societal unrest will take centre stage amid elections over the next several major economies that are set to take place in the next two years,” said the report.”

Klint said that “AI generates disinformation and cyber risks”. “These cyber advances provide cyber criminals with new forms to exploit [the technology]. You don’t even need to be smart now to be a successful cybercriminal,” she said. “AI can impersonate others for scams, it can look at data trails, which is a very serious concern, but on the other hand the good news is that AI can also be used for better responses to crime. It can process vast amounts of data and it can help security processes.”

AI has already seen amazing inroads in the insurance industry over the past 18 months, with many companies now utilising ChatGPT in their back and front office areas as they discover new ways to work with it.

When it comes to technology, few anticipated AI and ChatGPT to move so quickly. “We can easily underestimate how the world is changing when it comes to technological adoption – the speed at which some of these developments take over our lives and start to dramatically change the workforce or change the way we consume or change the fortunes of products that are winners and losers,” said James Pomeroy, Global Economist at HSBC, identifying AI as a key macro trend.

“A great example is AI: [in 2022] we wouldn’t have talked about AI being this massive, fundamental technology, and yet you almost can't have a conversation without it at the moment,” he continued.

Pomeroy also highlighted the amazing work the tool could do. The potential of ChatGPT, he said, at the Insurance Investor Live | Europe event in September last year, was that it could eliminate ‘busy’ work – or tedious, repetitive tasks – and offer people more leisure time. The result would be an increase in discretionary spending, greasing the wheels of the global economy.

“AI is a hand holder not a job killer,” he said. “I think the economy is genuinely better off with office workers watching two hours of Netflix than spending those two hours sitting at their desks not working.”

The International Finance Corporation (IFC) said in a 2020 report, “Artificial Intelligence in Emerging Markets—Opportunities, Trends, and Emerging Business Models”, published long before the current craze, that AI would provide “new ways to leapfrog infrastructure gaps and solve pressing development challenges in critical sectors.”

“AI – the science of making machines act in rational, intelligent ways – is making inroads into business operations and society, said the IFC. “[It] is already being applied … with high penetration in financial services followed by e-commerce, healthcare, education, agriculture, and manufacturing."

“Traditionally, building major sectors of the economy required complex and expensive infrastructure,” said William Sonneborn Senior Director, Disruptive Technologies and Funds, IFC, in the report. “Today, innovative digital solutions allow developing countries to overcome existing infrastructure gaps more quickly and efficiently.”

“AI offers new ways to increase productivity; in others, it allows countries to leapfrog traditional development models, skipping the need to build expensive infrastructure—or, at least, making it much less capital intensive,” he added.

Destabilisation tool?

Klint also warned that the rise of AI in different areas could feed into the greater cyber threat – something the insurance industry has identified as one of its main fears for well over a decade.

One of the areas she was most concerned about was the use of deep fakes, which were utilised in the recent Taiwanese election this month, with politicians being manipulated to look as if they vocalising statements designed to inflame tensions with China. 

Such deep fake videos can be used, Klint said, to erode democracy and trust in institutions as a way to destabilise countries and attack their economies. Klint and Zahidi both warned that this use of AI could cause fractures in civil society and the social contract between governments and their citizens.

What of investments?

Ultimately, the report highlighted that technology is changing in such a way that cyber and AI will continue to be a greater risk for insurance companies both in their underwriting and investment portfolios.

One of the reasons this could be the case is because of the risk to the well-being of a nation state if manipulation happens, such as central back hacking or electricity network hacking. There is also the issue of how to model investment risks as an insurer. How can insurers model cyber risk for portfolios, and do they need to be more aware of certain sectors?

Klint gave the example of the Bangladeshi national bank hack in 2016, which could now happen much more quickly. It took the hackers months to get access to the computer systems and steal the money, which, with AI, Klint said, could have been done in days. As a result, there are new security measures in place.

There is also the continuing Ukraine/Russia situation where digital infrastructure, especially related to the power grid, has been attacked multiple times since the beginning of the conflicts between the two countries, back in 2014. Klint warned this situation could be a precursor to attacks in the US.

These concerns are relevant to investment portfolios as some companies could pull their investments from emerging markets or areas that are more at risk due to these attacks. There could also be an avoidance of sectors that are more at risk from potentially seeing these kinds of attacks, such as the aforementioned electricity networks.

With all the hype surrounding ChatGPT, cryptocurrency, and tokenisation in general, insurance investment teams seeking to match long-dated liabilities should remember that AI is a broad field – and some segments are more mature than others.

Last year, amidst the surprise at the success of the CHIPS Act in the US, insurers were warned to look at the opportunities that could crop up in these areas first, and how important it was to separate the wheat from the chaff.

“We have to recognise the fact that everything we depend on – water, electricity, financial systems, communication systems – is dependent on the integrity of incredibly connected network of systems,” said Klint. “So business have to take a pro-active approach and assess vulnerabilities,” she added. So will societies in general.