Insurers need to be aware of regulatory challenges posed by AI
13 October 2021
The European Union (EU) draft Artificial Intelligence Regulation (AIR) is designed to prohibit use of AI technologies that create “unacceptable risk”.
According to the European Insurance and Occupational Pensions Authority (EIOPA), 31% of EU insurers actively used AI in 2018 with a further 24% at proof-of-concept stage.
The European Commission has revealed its plan to invest €1 billion per year in AI from its Digital Europe and Horizon Europe programmes and the coronavirus pandemic is accelerating the adoption of new technologies and new ways of working throughout the insurance industry.
However, whilst the use of AI technologies has the potential to bring significant benefits to a variety of stakeholders, policy makers are concerned that, without appropriate regulation, the use of AI technology could pose risks to the rights and freedoms of individuals.
The Draft AI Regulation addresses key areas including:
• Rules for the placing on the market, the putting into service and the use of AI systems in the EU
• Prohibitions of certain AI practices
• Specific requirements for “high-risk” AI systems
• Transparency rules for AI systems
• Rules on market monitoring and surveillance.
The proposed regulations are driven by the EU’s Digital Decade Strategy and as a result, insurers need to be aware of the resulting business and regulatory challenges.
The EU strategy is based on the belief “The EU has the potential to become the global leader in safe artificial intelligence. By developing a strong regulatory framework based on human rights and fundamental values, the EU can develop an AI system that benefit people, businesses and governments.”
The Insurance industry focus is likely to be on technologies classified as “high” and “limited” risk under the AIR. No specific insurance application is identified as high-risk, but insurers will still need to consider each listed use case carefully for potential impacts.
AI used for creditworthiness evaluations and credit scoring is high-riskalong with Biometric identification and categorisation systems and life insurers proposing to use such systems in underwriting could be impacted and the regulations being proposed could impose obligations on users and providers of AI systems.