[Watch and read] The transformative impact of AI

In the second of our articles based on an online panel of experts assembled by Captive International, the impact of artificial intelligence and other elements was discussed.

Captive International assembled a panel of experts to discuss a wide range of issues facing Bermuda, including the significance and potential dangers of artificial intelligence (AI) in today’s marketplace, particularly within the insurance industry.

The panel included Jack Meskunas, executive director of investments at Oppenheimer & Co; Yanique Miller, vice president at Aon Insurance Managers; and Nicola Hallett, managing director, Artex in Bermuda. Their discussion provided an examination of AI’s growing influence on the industry, highlighting its opportunities and challenges.

The panel began by addressing the increasing prominence of AI across various sectors. Meskunas emphasised the inevitability of AI’s impact, noting that it is poised to drive almost every aspect of modern life, including transportation, where AI could soon be responsible for autonomously driving vehicles.

He drew parallels between the current state of AI adoption and the early days of the internet in the mid-1990s, a period when many companies were unsure how to integrate the new technology into their business strategies.

Meskunas expressed confidence that AI would become an important tool in industries such as insurance, which rely heavily on data analysis and risk assessment. He acknowledged, however, that the technology is still in its infancy, with many businesses struggling to develop a clear AI strategy.

“If the AI isn’t programmed properly, what you get out isn’t going to be useful,” he pointed out.

However, he went on to stress that the potential for AI to revolutionise the insurance industry is immense, given the sector’s reliance on number crunching, data analysis, and risk modelling. AI could significantly enhance these processes, leading to more accurate predictions and better decision-making, he said.

Meskunas cautioned about the dangers associated with AI, particularly when it comes to programming biases and flaws. He said that if AI systems are not properly programmed, the results could be inaccurate or even harmful. He warned that the insurance industry, in particular, needs to ensure that AI systems are backed by sufficient computational power and deep, accurate programming to avoid such pitfalls.

Despite these concerns, Meskunas remained optimistic that these issues would improve over time as the technology evolves.

“Captives need to ensure they remain in line with global regulations while still embracing innovation.”Nicola Hallett, Artex in Bermuda

The evolving nature of AI

Miller offered her perspective on the rapidly evolving nature of AI. “I do think that is a fast-paced and ever-evolving area,” she warned and she predicted that the insurance industry would have to continuously adapt to keep up with these changes. Miller pointed out that AI’s ability to learn and evolve over time means that even as the industry becomes more familiar with the technology, it will need to remain vigilant and ready to respond to new developments.

One of the primary risks Miller highlighted was the potential for data breaches. As AI systems learn from vast amounts of data, there is a risk that sensitive information could be exposed if proper precautions are not taken. She noted that the insurance industry has faced similar challenges in the past with the emergence of cyber risks, which required a concerted effort to understand and mitigate. AI, she argued, will require a similar approach, with the industry needing to stay ahead of potential risks to protect policyholders.

“AI could lead to unintended lawsuits if it inadvertently uses information without the necessary approvals.”Yanique Miller, Aon Insurance Managers

Miller also touched on the issue of legal liabilities, suggesting that AI could lead to unintended lawsuits if it inadvertently uses information without the necessary approvals. This, she warned, could expose companies to significant risks, particularly as AI becomes more integrated into business processes. Despite these concerns, Miller expressed excitement about the potential of AI to transform the insurance industry, noting that it would be interesting to see how the sector evolves in response to these challenges.

“Captives should continuously explore new risks and opportunities to diversify their portfolios.” Jack Meskunas, Oppenheimer & Co

Reshaping the insurance industry

“The emergence of AI is already reshaping the insurance industry,” Hallett said. “It’s looking at huge amounts of data, analysing and recognising trends and losses.”

She underlined the above point, on AI’s ability to analyse vast amounts of data and identify trends that can help underwriters make more informed decisions. However, she also highlighted some of the dangers associated with AI, particularly in relation to data privacy and the potential for skewed data leading to poor decision-making.

Hallett pointed out that AI is heavily reliant on algorithms, which can sometimes produce skewed or inaccurate results if not properly designed. This, she argued, could lead to significant liabilities for insurance companies if they base their decisions on faulty data. Moreover, she noted that AI’s ability to analyse emerging risks is limited by the lack of historical claims data, making it difficult for the technology to accurately assess new types of risks.

Despite these challenges, Hallett remained optimistic about AI’s potential to enhance the insurance industry. She stressed the importance of continuous learning and adaptation, suggesting that insurance companies need to stay up to date with the latest developments in AI to avoid falling behind. She emphasised the importance of balancing innovation with caution, particularly when it comes to embracing new technologies such as AI.

Balancing innovation with prudence

The discussion shifted to the broader question of how innovative the captive insurance market should be, particularly in light of the opportunities and risks associated with AI. Meskunas argued that the market should be as innovative as possible, noting that innovation is the driving force behind progress in any industry. He suggested that captives should continuously explore new risks and opportunities to diversify their portfolios and enhance their resilience.

He acknowledged the need for prudence, particularly when it comes to testing new ideas. The industry needs to carefully plan and test new ideas before implementing them, particularly when it comes to managing risks, he said. As an investment professional, Meskunas emphasised the importance of understanding the risks associated with different types of claims to better manage portfolios and ensure adequate liquidity in the event of a catastrophic claim.

Hallett agreed with Meskunas, noting that captives should embrace new ideas and innovations, particularly in the realm of digital technology. She pointed out that captives could play a crucial role in managing risks associated with AI, such as algorithmic errors and system failures. She warned however that captives need to be mindful of regulatory requirements, as regulators around the world are increasingly scrutinising the industry to prevent misuse.

Hallett stressed the importance of compliance, noting that captives need to ensure they remain in line with global regulations while still embracing innovation.

Miller echoed these sentiments, emphasising the importance of innovation in the captive insurance market. She argued that captives should play a role in managing risks as part of a broader risk management strategy. “How the captive plays a role for its parent is directly related to what makes sense for that company and what that company is facing,” she said.

Miller highlighted the importance of regulation, noting that Bermuda has a strong track record of balancing innovation with appropriate regulatory oversight. She expressed confidence that Bermuda’s regulatory framework would continue to evolve in response to new risks, ensuring that the Island remains a leading hub for the insurance industry.

“It is a very exciting time to be in the insurance industry,” Miller said.

Watch full panel discussion here.