As new impactful technologies emerge, insurance providers grapple with pricing risk properly. Effective solutions are developed by looking at relevant regulations and comparable industries. Providers must also develop a nuanced understanding of the technology.
Alternative Intelligence (AI) has insurers considering all of the above, and more. One provider is Relm, which recently unveiled three AI insurance products addressing unique use cases.
Head of product and emerging risk, Claire Davey, said insuring new sectors begins with learning the intricacies of the involved technologies. How are they different from more familiar ones?
Designing insurance for emerging sectors
That knowledge journey may involve taking university seminars. Insurers often meet with investors to learn more and hear their concerns. Relevant regulations are analyzed against best practices.
What are business expectations? How can proper products be developed that protect consumers while adhering to regulations?
The insurance industry also works together to understand emerging technologies.
“Many bodies are working on projects to understand these emerging risks, and we must understand where they are, where the rest of the market is, and where insurance regulators are,” Davey said. “Are there concerns around the solvency of insurers to these risks, and how are insurers approaching them?”
“So the research and development piece is both looking from an industry-centric perspective of that technology and its use cases and how it’s regulated, but then also from an insurance industry perspective and how we are as a collective responding to it and how our regulators expect us to be engaging with it.”
With AI, Davey said Relm knew an EU AI Act was coming. In some ways, it developed on a similar path to GDPR. That provided a welcome starting point, given heightened uncertainty stateside.
“The particular unknown for us around AI regulation is in the United States,” Davey said. “(In 2024) there were moves towards a federal AI Act, which was making its way through under the Biden administration. Donald Trump was inaugurated, and he revoked that federal AI bill.
“Now we’re back to a situation where it’s state-specific. Individual states may have AI regulations, but what you’ll also find is that regulations that were never intended to do anything with AI, like discrimination in the workplace, or workplace audits, HR audits, all of these regulations are now trying to find a way to respond to these emerging risks.”
When regulatory certainty is lacking, as with AI, how do providers begin to develop products? Davey said deeper underwriting is needed than in the EU, which has clearer regulations.
Issues for insurers
Bias, transparency, and confidentiality are three concerns. Insurance providers must assess the risk of penalties from a specific company’s use of AI. That extends beyond privacy invasions to whether they took appropriate steps to minimize risk. The only real way is to review the extent to which the company and technology have good governance as outlined in regulations.
AI models must be scrutinized for how training data is selected and used. There must be controls and testing in place to prevent bias.
Intellectual property infringements are a hot topic since GenAI’s advent. Consider large language models that produce text or images. How do companies ensure they are not plagiarizing others’ work?
“Intellectual property is where we’re seeing a lot of case law in the world,” Davey said. “I think there’ll be a lot of jurisprudence coming out to the next year regarding how different countries approach, not only the IP of what the whether you have infringed upon someone’s IP, but also whether the creators, when creating something using AI technology, whether you can assign your intellectual property copyright to that.”
“And there are mixed views on that at the moment.”
Maintenance of confidentiality is another hot issue, especially when AI is being trained for facial recognition in sensitive areas like banking and law. Effective controls must protect confidential information.
Web3 and crypto seeing some clarity
Web3 is similar to AI due to regulatory uncertainties. Regions differ on cryptocurrency’s legality. Some are playing catch-up.
“What we’ve seen since President Trump has come in is that there has been reduced risk in the crypto landscape, and that’s had a positive impact on the industry,” Davey said. “We can see that with prices of certain cryptocurrencies, and with the probabilities of default having gone down with cryptocurrency exchanges. I think it’s reaching more stability.”
“That doesn’t mean it’s immune to regulation. Within the insurance industry, we could say that decentralized technologies are now becoming more widely understood as to what they are and how they operate. That has attracted more insurance capital and more options for clients.”
Another consideration is combining multiple technologies under one insurance line.
“Web3, fintechs, AI… these businesses are often spanning across a number of these technologies, and it’s not easy to draw the line right where one technology is versus another, but also where one line of insurance may respond,” Davey said. “For example, if you’re a fintech, you are potentially offering technology and financial services.
“You may have a cyber exposure, and you may also have a crime exposure, and if you have a loss, it may trigger one or multiple of those coverages. If we have innovative firms operating in these industries, it’s important to obtain relevant and tailored solutions that meet their needs, where the claims won’t fall through the gaps.”
Companies competing for primacy in emerging areas tend to fall into two types. One envisions stringent regulations and makes security an early concern. The other works to introduce a minimally viable product before iterating on the fly, with security concerns left until later.
Security became a higher priority a decade ago when some C-suite executives began losing jobs due to lax procedures. Davey acknowledged it’s a more challenging task for startups, whose founders juggle many balls while learning as they go.
“That’s an entrepreneurial spirit and attitude towards emerging risk that I greatly respect and admire,” Davey said. “Our job as an insurer, and where we like to position ourselves, is to partner with those startups and help them in their journey towards scaling, where those risk functions and attitudes to risk and governance start to mature into what they should be.”
“But it is a journey.”
