The use of artificial intelligence (AI) by insurers and cyber risk will be a top 2024 strategic priority for the National Association of Insurance Commissioners (NAIC) due to its overwhelming and constantly increasing use in the industry.
In a statement outlining top priorities for the year, the NAIC notes, “The rapid development and use of AI and other technologies create opportunity but also raise key questions regarding consumer privacy, cyber risk, carrier needs and capabilities, and the complexity of the regulatory landscape.” Regulators will address the issues through the NAIC’s Innovation, Cybersecurity, and Technology Committee, with the Privacy Protections Working Group focusing on “the future of safeguarding consumers’ sensitive information through modernized and enhanced privacy protections.”
The NAIC statement says, “In 2024, among other items, the NAIC’s agenda includes facilitating educational and engagement opportunities, leading key projects and efforts to monitor and support adoption of the Model Bulletin on the Use of Artificial Intelligence Systems by Insurers, researching and monitoring trends, proposing a regulatory framework for overseeing a third-party data and predictive models, and completing the development of the Cybersecurity Event Response Plan.”
AI: A Blessing and a Curse to Accept
According to CLM member Cathleen Kelly Rebar, partner, Rebar Kelly, “As businesses become more reliant on the use of [AI], the threat of cyberattacks increases. Cyber insurance is a staple in cyber risk management for businesses, but the use of AI has caused an increase in premium. Cyber insurers are sorting through challenges in anticipated exposure of claims due to the increase in AI and standard underwriting models may not be effective.
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“Interestingly,” she continues, “insurers are now turning to AI to help better predict the cyber risk of potential insureds. For instance, natural language models in certain AI applications can help scan insurance applications and process those applications through underwriting quicker than manual reviews. Further, AI can assist in reviewing existing data to provide better risk evaluation. It appears AI is both a benefit and a detriment to insurers by causing a rise in claims but also helping to better assess the risk for underwriting.”
J. Thaddeus Eckenrode, attorney and founder of Eckenrode Maupin, Attorneys at Law, noted that in his experience so far, “[a]s defense counsel, we have not yet seen AI creep into any of our cases, but we are aware of the anecdotal reports already of attorneys who have been caught using AI-generated legal citations (that were wrong) and recognize that some courts are already publishing rules forbidding the use of such materials in legal proceedings. However, AI apps and programs in just the past year have proliferated, and by next year, we expect to see AI used more in claims evaluations and investigations and by law firms in ‘behind the scenes’ litigation strategies. To that end, cyber insurance policies will have to emerge to include risks generated by AI.
“Notably, our firm’s policy language for this past year does not even include the words ‘artificial intelligence’ or ‘AI’ in the 59 pages of policy terms. Providing coverage for potential use or misuse of AI-generated data will likely be an additional issue for insurers going forward.”
NAIC’s Other Top Priorities
The NAIC listed its other top priorities for 2024 as: climate risk/natural catastrophe and resilience; insurer financial oversight and transparency; marketing of insurance products; and race and insurance, financial inclusion, and protection gaps.
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“Each year, the NAIC addresses all its work through collaboration of the NAIC Members and staff and the charges of the NAIC committees, task forces, and working groups,” Andrew Mais, NAIC president and Connecticut insurance commissioner, tells CLM. “As part of that process, NAIC members discuss and select certain regulatory priorities as particular areas of focus, while continuing work on numerous other fronts, based on the most pressing issues facing consumers, the industry, and insurance regulation. Though the priorities are similar in nature each year to some degree, they evolve along with changing risks and challenges as insurance regulators continue working to protect consumers and keep markets healthy, stable, and secure.”