[Watch and read] AI and captives: opportunities and challenges
In the second feature based on an online panel of captive experts, we look at the impact of AI on captives.
Artificial intelligence (AI) has emerged as a transformative force across various industries, and the captive insurance sector is no exception. As the technology continues to evolve, industry leaders are keenly observing its potential to reshape the landscape.
Artificial intelligence (AI) has emerged as a transformative force across various industries, and the captive insurance sector is no exception. As the technology continues to evolve, industry leaders are keenly observing its potential to reshape the landscape.
Captive International organised an online panel with Anne Marie Towle, chief executive of Global Risk and Global Captive Solutions at Hylant; Kevin Mead, chief executive of the Vermont Captive Insurance Association (VCIA); Mark Weideman, the captive director for the Tennessee Department of Commerce and Insurance; Stephen Taylor, director of the Bureau of Captive and Financial Insurance Products for the Delaware Department of Insurance; and Jesse Olsen, chief operating officer of Helio Risk.
AI’s integration into the insurance industry is already underway, with applications ranging from processing claims to actuarial analysis. Towle highlighted the increasing exploration of AI’s potential within the captives sector.
“We’re starting to see its use in a variety of areas,” she noted, citing the example of claims processing where AI can help streamline operations. Towle emphasised that the objective is to leverage AI to enhance efficiency and add value to client interactions, making the industry not just reactive but strategically proactive.
She acknowledged the challenges that come with this adoption, particularly in the regulatory realm. “From a regulatory perspective, you might be the last adopters of AI because of the scrutiny,” she said. This cautious approach is understandable, given the complexities involved in ensuring that AI-driven processes meet the stringent requirements of insurance regulation.
Mead echoed this sentiment, pointing out that while AI is significant, its rapid development can lead to unforeseen consequences. “It’s the wild west out there,” he remarked, describing the unregulated nature of AI’s growth. Mead drew attention to the sophistication of generative AI tools such as ChatGPT, which have evolved dramatically within a short span of time.
This rapid progression, while promising, also brings uncertainty. “We will get to the stage where we are unsure what has been produced by AI, and what by humans,” he warned, highlighting the potential for AI to blur the lines between human and machine-generated outputs.
“The human element is never going to go away.” Jesse Olsen, Helio Risk
Regulatory challenges and concerns
From a regulatory standpoint, AI presents opportunities as well as significant challenges. Weideman outlined the risks associated with AI’s growing presence in business processes. “The more it is inserted into business processes, there are greater risks,” he explained, citing concerns about data confidentiality, security risks, and the accuracy of AI-generated information.
These issues are particularly pertinent in a highly regulated industry such as insurance, where the reliability of data and processes is paramount.
Weideman touched on the potential pitfalls of AI in creating algorithmic-based decision-making models that may not cater to the unique needs of each captive. “There’s a risk that AI could create a one-size-fits-all solution for something for which one size does not fit all,” he warned. This concern is shared by many in the industry, who worry that the nuances and individuality of each captive could be lost in the pursuit of efficiency through AI.
Taylor added another layer of complexity to the discussion, emphasising the need for regulators to strike a balance between embracing new technologies and ensuring they are adequately understood and controlled.
“We have to be careful on how it’s used, especially in the captive insurance space,” he said, pointing out the risks of adopting AI processes too quickly without fully grasping their implications. Taylor gave an analogy of using a backhoe instead of a shovel to dig a hole which underscored the potential of AI to vastly improve efficiency, but only when used appropriately and with a clear understanding of its capabilities.
The human element and ethics
Beyond the technical and regulatory challenges, there is concern about a potential over-reliance on AI, especially among younger professionals entering the industry. Olsen noted the temptation to depend too heavily on AI for tasks such as quality control.
“The human element is never going to go away,” he asserted, stressing that AI should not replace the rigorous peer review and critical thinking that are essential in the industry.
Olsen’s comments highlighted a broader ethical consideration: the need to maintain a balance between leveraging AI for efficiency and ensuring that the technology does not erode the fundamental principles of the industry. He warned against a future where professionals might say: “The AI did it, so I’m not sure I need to check this as carefully.” This complacence could lead to a degradation of standards and ultimately harm the industry’s reputation, he said.
Olsen sees AI as a tool to offload repetitive tasks, allowing professionals to focus on more complex and strategic work. This perspective was shared by others in the discussion, who see AI as a means to commoditise routine tasks, freeing up human talent for higher-value activities. However, the risk remains that if not carefully managed, AI could lead to a deskilling of the workforce, with professionals becoming overly dependent on machines for decision-making.
“The more it is inserted into business processes, there are greater risks.” Mark Weideman, Tennessee DOCI
The future of AI in captive insurance
As AI continues to advance, its role in the captive insurance industry will undoubtedly expand. However, as this discussion among industry leaders suggests, this evolution must be approached with caution. While AI offers tremendous potential to improve efficiency, streamline processes, and uncover new insights, it introduces risks that need to be carefully managed, the panel agreed.
Towle’s comments on leveraging AI for actuarial analysis highlight a key area where the technology could have a profound impact. By running multiple simulations and analyses, AI could significantly enhance the accuracy and depth of actuarial work, providing more robust data for decision-making. However, as Towle noted, this must be done in a way that complements, rather than replaces, the expertise of human actuaries.
Mead added that the unregulated nature of AI’s growth serves as a reminder that the industry must be vigilant in how it adopts these technologies. The potential for AI to blur the lines between human and machine-generated outputs poses a challenge not just for regulators but for the industry as a whole, which must maintain its commitment to transparency and accountability.
“We will get to the stage where we are unsure what has been produced by AI, and what by humans.” Kevin Mead, VCIA
Weideman’s and Taylor’s focus on the regulatory challenges underscores the importance of developing frameworks that can accommodate AI’s capabilities while safeguarding against its risks. As AI becomes more integrated into the industry, regulators will need to adapt and evolve to ensure that the technology is used responsibly and that its benefits are realised without compromising the integrity of the industry.
Olsen’s emphasis on the human element serves as a crucial reminder that AI, for all its capabilities, is a tool that must be wielded by skilled professionals. The industry must ensure that as it embraces AI, it does not lose sight of the critical thinking, expertise, and ethical standards that have long defined its success.
The panel agreed that AI represents a significant opportunity for the captive insurance industry, offering the potential to revolutionise processes, enhance efficiency, and drive innovation. However, as the insights from industry leaders reveal, this potential comes with substantial risks that must be carefully navigated.
The future of AI in captive insurance will depend on finding the right balance between embracing new technologies and maintaining the human element that is essential to the industry’s success. As the industry moves forward, it will need to address the challenges of regulation, data security, and ethical considerations while ensuring that AI serves as a tool to augment, rather than replace, the expertise of its professionals, the panel concluded.
Click here to read Captive International's US Focus 2024 publication.
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