In February 2025, the first requirements from the AI Act came into effect. Erik Poorthuis and Roderick Watson gave their take on the new law in an interview with VNAB Visie, the magazine of the Dutch Insurance Exchange Association. Here are three take aways in relation to the insurance market. Here are three key insights in relation to the insurance market.
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1. Regulatory framework with binding rules
The AI Act is the first law in the world, that specifically regulates artificial intelligence. It extends beyond the more general rules that apply to the use of AI by insurers. These rules are laid down in the Dutch Financial Supervision Act and the Ethical Framework from the Dutch Association of Insurers. The AI Act introduces a broader framework with new requirements and challenges. Insurers must act now to ensure compliance with its binding rules and manage AI-related risks.
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2. Identify, assess, and manage AI-related risks
The AI Act categorises risks into four levels: unacceptable, high, limited, and minimal. AI applications affecting access to life and health insurance are classified as high risk and will face stringent regulations. Non-life insurance will encounter less strict rules. This distinction affects insurers' obligations and compliance requirements for AI implementation.
Insurers must identify, assess, and manage AI-related risks through their control framework. They must also preserve relevant data and ensure human oversight, especially in the highly regulated insurance sector.
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3. Seize AI opportunities within new regulations.
Despite the challenges, there are also opportunities for insurers. The AI Act compels insurers to consider new insurance products targeting AI-related risks. This enables the creation of innovative products, such as a policy that protects companies that use or develop AI against claims of their customers or third parties. AI insurance could follow the same route as the cyber policy a few years ago and develop into a stand-alone product. New products can give insurers an edge in a dynamic market.
In addition, AI can play a significant role in making internal processes more efficient for insurers. AI systems can for instance be used to support the claims handling process, a currently labor-intensive task. By using AI, insurers can speed up their operational processes, leading to cost savings and improved customer experience. Other possible areas where the application of AI can support insurers is setting premiums, enhancing customer service, and analysing risks.
While the use of AI presents challenges, it also offers opportunities for innovation and growth in the sector. It is up to the market to leverage the possibilities that AI provides within the new legal frameworks.