Maintaining compliance in the heavily regulated insurance industry has always been a logistical challenge and a critical necessity, but developments in compliance automation technology, artificial intelligence (AI), and generative artificial intelligence (GenAI), are empowering modern insurers to better navigate these complexities.

Imminent transformation

In conjunction with the growing use of automation practices, investments in new AI tools are poised to transform the insurance sector by enhancing insurers’ compliance operations, improving their efficiency and precision, and expanding their horizons with new business ventures. Though early in its adoption, AI’s role in insurance is no longer merely speculative, and many insurers are actively testing its application to their workflows.

At the same time, insurance regulatory bodies are moving quickly trying to craft new, effective guidelines in anticipation of the industry’s embrace of even more disruptive GenAI tools, which have the capacity to produce custom content at scale and could revolutionize all information-based industries.

Emerging regulatory guidance on AI

In December 2023 the National Association of Insurance Commissioners (NAIC) released its model bulletin that provides guidance allowing for responsible use of AI by insurers, and several state departments of insurance have taken steps toward adopting or soliciting public comment on these proposed measures. Importantly, the NAIC’s bulletin emphasizes the need for insurers to ensure their AI systems are transparent, accurate, and free from bias. It also encourages insurers to institute robust governance and risk management controls for in-house and third-party AI technologies.

Scott Kosnoff, an artificial intelligence and insurance compliance attorney advised top insurance regulators in the U.S. on the benefits and risks of AI at the invitation of the NAIC. In a recent article, Kosnoff stated:

“Complying with the NAIC bulletin will entail a significant lift for most insurers. It’s not the sort of thing you can knock out over a three-day weekend.”

He also explained, “Unfortunately, insurers that use AI are going to be subject to some amount of regulatory, litigation and reputational risk. To mitigate that risk, insurers should strive to have a good story to tell—one that demonstrates to regulators and other stakeholders that the insurer understands the concerns that have been raised about AI, takes those concerns seriously and is acting with reasonable care to try to avoid negative outcomes.”

As new laws regulating the use of AI in insurance are underway in the U.S. (and Europe, too), it is worthwhile to consider some of the reasons insurers are drawn to AI in the first place.

Addressing complex challenges with AI and automation

Insurers are subject to complex and changing regulations in every state where they do business, regulations which are designed to protect consumers, ensure fair practices, and ensure solvency in insurance markets. However, for insurers operating in multiple states, the volume of regulations can be overwhelming. Guaranteeing alignment between new regulations and traditional compliance practices—including manual review of massive quantities of data and documentation—is not only time-consuming but prone to error.

Automation technologies streamline compliance processes around producer credentialing, reduce the risk of oversights, and allow companies to focus more on strategic initiatives rather than administrative tasks. AI tools promise to take these benefits to an entirely new level:

• Enhanced data management

A primary benefit toward better compliance is enhanced data management. Insurers deal with vast troves of data, from producer licensing and customer information to claims records and policy details. AI-empowered solutions can instantly validate data inputs against trusted information resources, ensuring accuracy and currentness. With this functionality, AI algorithms can identify records discrepancies and flag potential issues for more comprehensive review, focusing the effort required for data verification by insurance professionals to the issues that matter most.

• Real-time monitoring and reporting

Regulatory compliance compels insurers to conduct routine reporting and audits. Automation software can continuously monitor transactions and activities in real-time, ensuring better adherence to these requirements. This real-time monitoring capability allows for immediate detection and correction of any issue that falls short of the current regulatory standard. Additionally, automated reporting tools can generate comprehensive reports quickly and accurately, streamlining audits and regulatory submissions. Adding AI to these workflows could enable the use of natural language processing (NLP, a key component to the efficacy of GenAI) to analyze unstructured data sources such as notes to ensure enhanced compliance.

• Risk management and fraud detection

AI’s predictive analytics capabilities are particularly useful in areas of risk management and fraud detection. By analyzing historical data to identify trends and patterns, an advanced AI system could recognize potential compliance risks or fraudulent activities before they have the chance to negatively impact insurers. This proactive approach would help maintain compliance and protect the company from financial losses or reputational damage.

Leveraging AI beyond compliance and across the policy lifecycle

AI’s impact on the insurance industry certainly extends beyond compliance. AI has the potential to lead innovation throughout the entire policy process, from underwriting and policy issuance to claims processing and customer service.

As an example, AI could expedite the entire claims process by automating routine tasks and providing preliminary assessments to assist adjusters. This would not only speed up settlements but also improve customer satisfaction by reducing the time taken to process their claims. Perhaps the most immediate use case out of many, though, is in intuitive customer interfaces, which could become more personalized and engaging.

Industry leaders pioneering the use of AI

Already, Progressive has begun investing in GenAI tools to improve policy pricing and open new business opportunities, and Travelers, too, has announced plans to vastly expand its technology capabilities through strategic hires in the field of AI. More broadly, GEICO, Allstate, and Lemonade have all deployed chatbots to provide instant service to their customers for simple requests such as basic advice or billing questions. But it’s important to keep in mind that all insurers will want to leverage AI in ways that augment human decision-making authority rather than reallocate it.

The future of AI and insurance compliance

As regulatory requirements continue to evolve, the adoption of automation technology and AI tools in compliance practices will become increasingly common. Companies that embrace these solutions will be better positioned to navigate the complexities of the regulatory landscape, drive innovation, and achieve sustainable growth, however, they must do so with caution. The potential for responsibly integrated AI in the insurance industry is immense, and insurers that leverage it effectively will transform how their businesses operate, interact with customers, and develop new products and services.

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