GFIA Annual Report 2023-2024

Disruptive technology

Finding that perfect balance

Managing AI risks and opportunities in the insurance sector

By Geeke Feiter, chair of the GFIA Disruptive Technology Working Group

It’s impossible to open a newspaper or scroll through the news without seeing stories about artificial intelligence (AI). From glowing reports on the incredible opportunities AI can create to more cautious voices warning about its disruptive potential: AI is everywhere. As I read these headlines, I cannot help but think about what this means for us in the insurance sector.

How can our sector navigate this wave of innovation, balancing progress with caution, to ensure we make the most of AI’s possibilities while managing the risks that come with it?

AI: an opportunity for innovation in insurance

The application of AI in the insurance sector presents great opportunities for streamlining processes. Automated claims processing, for instance, can transform lengthy procedures into efficient workflows, significantly reducing the time it takes for customers to receive their payouts. AI also optimises key procedures in the insurance value chain, increasing efficiency and offering competitive prices, with applications such as image recognition that speed up claims assessment and payout after natural catastrophic events. AI-powered claims triage capabilities also lead to faster service for clients and brokers.

AI-driven chatbots enhance customer service by providing immediate assistance around the clock, making sure that inquiries are addressed swiftly, helping insurers better meet customer expectations. For example, speech detection generates automated transcripts and summaries of customer calls, which are then available for future interactions. Some insurers are also experimenting with generative AI to provide real-time suggestions for employees on how to assist customers.

Managing risks: striking the right balance

While AI offers undeniable potential, it also brings challenges that must be carefully managed. A core challenge lies in ensuring that AI does not inadvertently lead to discrimination of groups or individuals. For instance, AI algorithms used in underwriting or claims handling must be carefully designed and tested to prevent unfair outcomes that could harm consumers and erode trust in the industry. Robust internal oversight measures are essential to ensure that these systems operate fairly.

In addition to insurers’ internal governance systems, an extensive regulatory and supervisory framework already addresses key aspects such as privacy, cyber security, anti-discrimination and more general consumer protection aspects. This combination of internal and external governance requirements makes the sector better equipped and prepared than many others to address potential AI-related risks.

“Insurers recognise the immense value of AI, not just in enhancing operational efficiency but also in better serving their customers.”

Governance: supporting balance with sound principles

Through my conversations with insurers, GFIA members, and supervisors, I have come to a hopeful conclusion: we are, perhaps, currently achieving a perfect balance between seizing the opportunities that artificial intelligence presents and managing its inherent risks. Insurers recognise the immense value of AI, not just in enhancing operational efficiency but also in better serving their customers. Yet, there is a shared understanding of insurers’ duty to protect consumers and uphold the trust that forms the foundation of the industry.

With longstanding experience in managing large datasets and complex models, the insurance industry can rely on well-established internal governance procedures. These procedures guide responsible AI use and ensure systems function ethically.

The industry’s current approach to AI is further supported by key principles that are outlined in the latest GFIA paper on artificial intelligence. These principles emphasise the importance of a risk-based approach to AI governance, focusing on transparency and accountability in the deployment of AI systems.

Model risk management is equally important; it involves understanding how AI systems reach their conclusions, continuously monitoring them for unexpected outcomes, and ensuring that there is appropriate human oversight. These elements are essential for maintaining trust and avoiding unintended consequences as insurers integrate AI into their operations.

Supervision: keeping pace with innovation

Regulators and supervisors also play an essential role in maintaining this balance. I recently read an interview with Laura van Geest, the chair of the Dutch Authority for Financial Markets (AFM), on the role of supervisors in the digital transformation.

In this interview, Van Geest articulated a crucial perspective on the evolving regulatory landscape surrounding AI. She stated, “You should not try to prescribe technology based on current knowledge, what in practice for supervisors is often knowledge from three years ago. Instead, we need to focus on the goals we want to achieve.” This guidance highlights the need for adaptable regulation that keeps pace with technological advances.

To me, this sentiment underscores the importance of flexibility in regulatory frameworks, allowing us to navigate new complexities that AI use will bring about, without stifling innovation.

The road ahead: continuous dialogue and collaboration

Achieving a balance today does not mean that the industry can afford to become complacent. AI is a rapidly developing field, and both its opportunities and risks will continue to evolve as new applications will emerge, bringing fresh challenges.

Maintaining this balance will require monitoring and proactive action from all parties involved. Insurers, regulators and supervisors must engage in an ongoing dialogue about how to best navigate the evolving AI landscape. This collaboration will be vital to ensure that AI continues to benefit both insurers and their customers without introducing undue risks.

The future of insurance with AI

While we can be confident that the insurance sector is currently on the right path, the dynamic nature of AI demands that the industry remains agile, alert and engaged. Embracing the transformative potential of AI while vigilantly safeguarding GFIA’s core values will help create an insurance landscape that not only adapts to innovation but also sets a standard for ethical AI use.

The insurance industry is ready to engage in meaningful dialogue and embrace change. Through research, understanding and collaboration, GFIA will continue to make sure that both insurers and consumers thrive in this rapidly evolving landscape.

Geeke Feiter

Dutch Association of Insurers

Geeke Feiter

Dutch Association of Insurers

Print version

Awareness-raising campaigns

Insurers across Europe are involved in a broad range of awareness-raising campaigns. For instance, in Germany, risk-awareness campaigns are implemented jointly by state authorities, consumer protection organisations, the insurance industry, architects and other stakeholders. Their collaboration is built around a common goal: to raise awareness of the effects of climate change and natural hazards, of the benefits of loss prevention, and of best practices as regards natural catastrophe-resilient buildings. The high level of risk awareness in Germany is one of the reasons for the relatively low protection gap; indeed, the insurance penetration rate for natural perils such as storm or hail is more than 90%.
Most European insurance associations have initiatives to raise risk awareness, such as dedicated workshops, events and educational seminars, as well as frequent in-depth articles, themed newsletters, presentations and other publications.
Many French insurers have launched prevention campaigns and also support the campaigns of “Assurance Prévention”, an association founded by the French insurance association (France Assureurs). Assurance Prévention has produced numerous leaflets, infographics, quizzes, etc. to raise awareness of natural risks. Through its initiatives, it aims to develop a “culture of risk prevention” among students and teachers.

The Greek insurance association (HAIC) launched a digital awareness campaign — “Better to know than to think you know” — to provide consumers with useful information about private insurance and to set the record straight on some misperceptions. The campaign consists of six videos to educate the public about how private insurance works. Most of the videos emphasise the need for resilience in the face of natcat risks and the role of insurers in protecting private property. The videos are hosted on the interactive iknow-insurance.gr platform, which allows visitors to do a short quiz to test their knowledge of private insurance and then obtain additional information.
Insurance Sweden is currently working with its members on a common methodology for calculating carbon dioxide emissions during building repairs. The aim is to raise awareness of the impact on CO2 emissions of rebuilding after fire or water damage, and thus of the importance, from that perspective as well, of preventing such damages.
Insurance Sweden published a statistical report in October 2021 on how different municipalities and regions have been affected by damage caused by flooding, storm and fire.
Spotlighting the central role of municipalities in climate-change adaptation, Insurance Sweden ranks Swedish municipalities according to their adaptation work. The methodology is based on the European Commission’s Adaption Support Tool (2013). The ranking is released every other year, the June 2021 version is available here.
UNESPA, the Spanish insurance association, launched a dedicated website in October 2021 — “Naturalmente Protegidos” (Naturally protected) to explain how natcat insurance works in Spain. It focuses on 10 different risks (rain, flood, wind, drought, frost, hail, snow, earthquake, volcanic eruption and lightning) and details for each how insurance covers property, life, harvests and livestock. The website illustrates the success of the Spanish public-private natcat insurance model. It was jointly developed by private insurers (UNESPA), the Consorcio de Compensación de Seguros (CCS) government scheme and Agroseguro, Spain’s agricultural insurance system, and was launched within the framework of Estamos Seguros, UNESPA’s financial education campaign (running since 2016).
In collaboration with CEPYME, the Spanish confederation of SMEs, UNESPA launched in October 2020 “Prevenir para crecer” (Prevent to grow), a website with information on insurance for SMEs. The website highlights potential risks to which SMEs are exposed, including natcat-related risks, and provides advice on how to prevent them.
Insurance Ireland, the Irish insurance association, and a number of Irish insurers have launched consumer blogs and information repositories on their websites to share useful information with consumers about responsible and ESG investing.

Education

The European insurance industry works to increase financial literacy in relation to risk awareness, insurance protection and long-term savings:

The Croatian Insurance Bureau (HUO) launched a first educational project in 2009, “Financial literacy in the Republic of Croatia”, which was followed by a range of educational activities, often implemented jointly with independent insurers. One of these activities, “Safer Tomorrow”, was initiated in 2021, and aims to raise citizens’ awareness of the benefits of insurance. Within the framework of the project, HUO launched several videos and infographics, some of which specifically target young people.
The HUO organises a yearly competition for the best scientific paper, the best graduate thesis and the best undergraduate thesis in the field of insurance. HUO also publishes the “Croatian magazine for INSURANCE”, a scientific journal for professionals to advance good practice in the sector. Finally, some insurers in Croatia created a colouring book for children to promote financial literacy at a young age in a fun and simple way.
In Italy, the ANIA Academy, together with CeTIF (Research Centre on Technologies, Innovation and Finance of the Università Cattolica del Sacro Cuore), launched the second edition (2022) of the 2nd level master’s in insurance management to train professionals and enable them to respond to the challenges of the “new normal”.
ANIA is also collaborating with LUISS Business School to develop a major course in insurance management as part of its Executive Master in Financial Management.
Insurance Europe produces information for consumers as part of its “InsureWisely” financial education initiative. This includes one-pagers on different insurance topics, including how to limit the effects of natural catastrophes.
The French insurance association (France Assureurs) developed a series of educational booklets within the framework of EDUCFI (the French national strategy for economic, budgetary, and financial education), an initiative launched by the French Central Bank. These booklets help users to better understand how insurance works and what insurance products do and do not cover.
The Spanish insurance association (UNESPA) set up a financial education programme for schools, “El Riesgo y Yo” (“The Risk and I”). It involves 40 insurance undertakings and 164 volunteers and aims to give 2 500 teenage school students basic financial knowledge and insights into risk management.