Insurers Need Well Drafted Commercial Contracts To Use Artificial Intelligence

• Published date: 19 December 2022
• Subject Matter: Insurance, Media, Telecoms, IT, Entertainment, Privacy, Technology, IT and Internet, Insurance Laws and Products, Privacy Protection, Security, New Technology
• Law Firm: Appleby
• Author: Duncan Card

It is impossible to overestimate the dependence of Bermuda's successful insurance sector on information technology. The more advanced and intelligent that technology is, the better that sector will be managed and operated, in all respects.

As with all fintech, it is a simple equation. The more advanced and intelligent an insurer's IT infrastructure is, the more complete, accurate and valuable artificial intelligence will be to drive analytics, risk assessments and successful business decisions.

The application of AI, as a part of any insurer's innovative IT infrastructure, is not new. After more than a decade of intelligent systems deployment, the 2018 report by the House of Lords Select Committee on Artificial Intelligence ' then chaired by Lord Clement-Jones ' titled AI in the UK: Ready, Willing and Able? discussed many regulatory options concerning AI's increasing commercial use, competitive value and possible risks.

It is in that context that the Bermuda Monetary Authority's recent report concerning that sector's use of "artificial intelligence" and "machine-learning" technology in Bermuda is particularly informative.

That report, based on the BMA's late-2021 survey of Bermuda insurers, provides many valuable and informative insights ' both concerning the use of AI in that sector and the BMA's indications as to the future of AI regulation in Bermuda.

As for the current and future use of AI by Bermuda's insurers, 38 per cent of all respondents reported they currently use some form of AI in their operations. As well, 23 per cent of insurers reported that they plan to adopt AI solutions within the next five years, thus indicating that within five years the majority of Bermuda insurers will use AI.

The AI use numbers are even more impressive among the larger insurance enterprises, defined in the report as "insurance groups".

Sixty-eight per cent of those respondents, all of whom have international affiliates, reported that they use AI.

Of particular interest to boards of directors, insurance executives and their legal advisers are four categories of survey response that the BMA reviews in the report.

First, six out of eight of the top concerns insurers expressed about managing the risk and operational quality of AI solutions identified AI's explainability, auditability, modelling challenges, security, consistency of output and execution challenges.

However, insurers must remember that where AI is deployed, all of those legitimate operational concerns are...