The AI Act: What is it and how will it affect the insurance industry?

In today's society, artificial intelligence is becoming increasingly important. It has countless applications, from the creation of autonomous vehicles to the use of facial recognition in security systems. However, these developments frequently prompt crucial moral issues. How can we safeguard personal information and guarantee that artificial intelligence is developed responsibly?

The AI Act

The European Union has acknowledged the significance of this challenge and has developed a pioneering framework for artificial intelligence regulation to ensure it is safe and ethical: The AI Act.

The Artificial Intelligence Act of the European Commission, which was put forth in April 2021, seeks to create a comprehensive framework for the ethical development and application of artificial intelligence (AI) in the European Union (EU). The purpose of the Act is to guarantee that AI systems are created and deployed in a way that respects people's fundamental rights and advances social ideals like equality, fairness, and transparency. Additionally, it specifies a variety of ethical guidelines for the creation and application of AI, including responsibility, transparency, respect for human rights, diversity, non-discrimination, and societal and environmental well-being.

The Act's emphasis on the idea of "human agency and oversight" is one of its most important features. This means that AI systems should be created and utilized in a way that gives people the freedom to choose for themselves and makes sure that the necessary safeguards are in place to hold AI systems accountable for their actions.

"High-risk" standards

In order to achieve this, the Act creates a variety of standards for "high-risk" AI systems, such as those employed in essential infrastructure, healthcare, or law enforcement. Prior to deployment, these systems must go through a risk assessment to make sure they don't pose any significant risk to people's rights or interests. This could potentially impact the insurance sector, since artificial intelligence (AI) is being utilized more and more in a range of insurance-related applications, including underwriting, risk assessment, and claims processing.

The ramifications of the AI Act in the insurance industry are not yet clear. However, stakeholders should be aware that if deemed high-risk, AI systems employed in the insurance industry will be subject to a broad range of requirements, including human oversight, openness, cybersecurity, risk management, and obligations for monitoring and reporting. According to sources within the European Commission, the AI Act might be voted on by the European Parliament as early as the end of March 2023. If everything goes according to plan, the regulation will be passed by the end of 2023 and take effect two years later.

Without a doubt, new legislation and regulations focused on AI use and development will influence the AI landscape in 2023.

Sources:

Benjamin, M. et al. (2022) What the draft European Union AI regulations mean for business, McKinsey & Company. McKinsey & Company. Available here.

Regulatory framework proposal on Artificial Intelligence (no date) Shaping Europe's digital future. Available here.

Johnson, K. (2021) The fight to define when AI is 'high risk', Wired. Conde Nast. Available here.