The explosion in artificial intelligence (AI) capability and applications has increased the potential for industry disruptions. One industry experiencing recent material disruption is about as traditional as it gets: insurance. While some level of disruption in the insurance industry is nothing new, AI has been accelerating more significant changes to industry fundamentals. This is the first advisory in a series exploring the legal risks and strategies surrounding disruptive insurance technologies, particularly those leveraging AI, known as Insurtech.
What is Insurtech?
Insurtech is a broad term that encompasses every stage of the insurance lifecycle. Cutting-edge technology can be instrumental in advertising, lead generation, sales, underwriting, claims processing and fraud detection, among others. Generative AI can assist in client management and retention. Insurtech can augment traditional forms of insurance such as car and health insurance, and facilitate less traditional forms of insurance, such as parametric insurance or microinsurance at scale.
Legal and Regulatory Risks of Insurtech
As Insurtech continues to evolve, designers, providers and deployers must be aware of the legal and regulatory risks inherent in the use of Insurtech at all stages. These risks are particularly heightened in the insurance world, where vendors and carriers process an enormous amount of personal information in the course of decision-making that impacts individuals’ rights, from advertising to product pricing to coverage decisions.
The heavily regulated nature of the traditional industry is also enhanced in the Insurtech context, given overlapping regulatory interests in regulating new technology applications. These additional layers of oversight – which in traditional applications may not be as much of a primary concern – include the Federal Trade Commission, states’ Attorneys’ General and in some jurisdictions, state-level privacy regulators.
Building Compliance for Insurtech Solutions
Designing, providing and deploying Insurtech solutions requires a multifaceted, customized approach to position agents, vendors, carriers and indeed any entity in the insurance stack for compliance. Taking early action to build appropriate governance for your Insurtech product or application is critical to building a defensive regulatory position. For entities that have an eye on raising capital, engaging in mergers or acquisitions, or other collaborative marketplace activity, such governance will minimize friction that can impede success.
Additionally, consumers are increasingly attentive to data privacy and AI governance standards. Incorporating proper data privacy and AI governance regimes from day one is not only a forward-thinking business decision to mitigate risk and facilitate success; it is also a market imperative.
Looking Ahead: Risks and Opportunities in 2025
Over the next few months, we will take a closer look into more discrete risks and opportunities that Insurtech providers and deployers need to keep in mind throughout 2025. Follow along as we explore this exciting area that in recent years has demonstrated enormous potential for continued growth.
Contact a member of Varnum’s Data Privacy and Cybersecurity Practice Team to discuss how your business can ensure compliance.