**How Generative AI Will Impact the Insurance Industry**
Generative AI has emerged as a transformative force in our economy, expected to contribute to a $7 trillion increase in global GDP, according to Goldman Sachs. This technology has the potential to revolutionize various sectors, including insurance, by introducing new products, services, and opportunities for efficiency. To better understand the implications of generative AI on insurance, we turned to ChatGPT-4, an AI oracle, and asked about the top three ways it believes this technology will impact policyholders. Here’s what we learned:
**1. Personalized Policies:** By analyzing vast amounts of data, AI can create policies tailored to the unique risk profiles of policyholders. This personalized approach can result in better coverage and potentially lower costs for individuals. Through accurate assessment of each policyholder’s risk profile, generative AI ensures that coverage and pricing align with their specific needs. This advancement could drive significant improvements in the insurance industry, enhancing customer satisfaction and reducing complexity.
**2. Faster Claims Processing:** The use of AI in claims processing can significantly speed up the payout process for policyholders. Automated systems powered by generative AI can quickly review claims, assess damages, and approve payouts with precision and efficiency. This streamlined approach eliminates unnecessary delays, allowing policyholders to receive the funds they need promptly. By improving the claims experience, generative AI enhances customer satisfaction and loyalty.
**3. Simplified Policy Language:** Generative AI has the potential to simplify complex policy language and terms. By training AI models on insurance law and policy documents, insurers can generate explanations and clarifications in plain language. This empowers policyholders to better understand their coverage and make informed decisions. Clear communication between insurers and policyholders is essential for establishing trust and ensuring policyholders have a comprehensive understanding of their insurance plans.
While there may be opportunities for policyholders to directly utilize generative AI in policy underwriting and claims, our primary focus is on the insurable risks associated with this technology. Businesses considering incorporating generative AI into their operations should evaluate their exposures and existing insurance programs to identify any gaps in coverage. Let’s explore some of the key risks associated with generative AI:
**Professional Liability/Errors & Omissions (E&O) Insurance:** The use of generative AI poses risks, as it may generate erroneous or “hallucinatory” output without a factual basis. For example, an attorney faced consequences when they cited non-existent legal authorities provided by ChatGPT, resulting in sanctions. Mistakes made by generative AI can lead to severe adverse consequences, such as coding errors that compromise a company’s network security. It is crucial for businesses actively using generative AI to evaluate their existing professional liability coverage, known as E&O insurance, and determine its applicability to generative AI-related claims. Assessing policy scope, exclusions, and limitations related to generative AI is vital for comprehensive coverage.
**Commercial General Liability/Media Liability Insurance:** Generative AI raises concerns related to intellectual property infringement and publicity rights. Lawsuits have already been filed against generative AI platforms, challenging their use of copyrighted material and alleging improper use of images or code. Claims related to generative AI output using allegedly infringing intellectual property may fall within the scope of existing insurance policies. Coverage for “personal and advertising injury” in commercial general liability (CGL) policies may address certain claims, including copyright infringement and violation of privacy rights. Media liability coverage within cyber insurance or specialty technology policies may also respond to generative AI-related IP claims. Policyholders should assess their current insurance programs, particularly CGL and cyber policies, to identify applicable coverage for IP claims and consider additional coverage if necessary.
**Employment Practices Liability Insurance (EPLI):** Generative AI’s potential for biased outcomes and offensive content raises concerns regarding discrimination and hostile work environment claims. While this issue is relatively nascent compared to others, businesses utilizing generative AI should consider potential exposure to claims alleging mistreatment of protected classes. Offensive content produced by AI systems could lead to allegations of hostile work environments and potential legal consequences. Companies should review their EPLI insurance in connection with these potential claims and ensure they have appropriate coverage.
Generative AI presents exciting opportunities but also introduces new liability exposures. To mitigate risks and protect against potential claims arising from generative AI, policyholders should collaborate with brokers and experienced coverage counsel. It is crucial to evaluate new and renewing insurance policies to account for changes in coverage related to generative AI. The insurance industry will also adapt to the developments in generative AI, making it essential for businesses to stay informed and proactive about their insurance needs in this rapidly evolving landscape.
Generative AI is revolutionizing the insurance industry, promising personalized policies, faster claims processing, and simplified policy language. However, it also brings new risks and challenges that policyholders must address. As organizations explore the adoption of generative AI, it’s crucial to assess their existing insurance coverage and identify potential gaps. Working closely with insurance brokers and coverage counsel is key to securing comprehensive protection. By staying proactive, policyholders can navigate the evolving landscape of generative AI and ensure their insurance programs are optimized for emerging risks.
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