Public consultation on draft Application Paper on the supervision of artificial intelligence

The consultation closed on 17 February 2024.

Background information 
The adoption of artificial intelligence (AI) systems is accelerating globally. For insurers these developments offer substantial commercial benefits across the insurance value chain. For example, enhancing policyholder retention through personalised engagement, achieving significant cost reductions via increased efficiency in policy administration and claims management, or applying AI capabilities to improve risk selection and pricing. However, with these advancements come notable risks that could detrimentally impact consumers as well as the financial soundness of insurers. For example, left unchecked, AI systems can reinforce historic societal biases or discrimination and, for individuals, can increase concerns around data privacy. For insurers, the opaque and complex nature of some AI systems can lead to accountability issues, where it becomes difficult to trace decisions or actions back to human operators, and uncertainty of outcomes (particularly in a changing external environment). Addressing such concerns is paramount to maintaining trust and fairness in the industry. 

Previous work by the IAIS has affirmed that the current Insurance Core Principles (ICPs) continue to be appropriate and relevant in managing these risks. The objective of this application paper therefore is to support supervisors when applying the ICPs to promote appropriate and globally consistent oversight of the use of AI within the insurance sector. 

The application paper reinforces the importance of the ICPs, outlining how existing expectations around governance and conduct remain essential considerations for supervisors and insurers using AI. Furthermore, noting that AI can amplify existing risks, this paper emphasises the importance of continued Board and senior managers’ education to establish robust risk and governance frameworks to ensure good consumer outcomes. Additionally, this paper notes that increasing application of AI can heighten the role of third parties like AI model vendors. Consistent with existing ICPs, this paper reaffirms that insurers remain responsible for understanding and managing these systems and their outcomes. The application paper covers four broad sections:  

• Governance and accountability: this includes the need to integrate AI into risk management systems, provide human oversight of AI risks and considerations around the use of third parties.  
• Robustness, safety and security: this considers issues related to the robustness, safety and security of AI systems.  
• Transparency and explainability: this section sets out the need for AI outcomes to be explainable and tailored to the need of different stakeholders.
• Fairness, ethics and redress: this section includes the need for fairness by design, monitoring of outcomes and adequate redress mechanisms. It also highlights the need for supervisors and insurers to consider the broad societal impacts of granular risk pricing on the principle of risk pooling.  

The drafting of this application paper benefited significantly from earlier input from stakeholders in roundtables in June 2024. 

The IAIS is currently reviewing responses to a public consultation on a draft Application Paper on the supervision of artificial intelligence.

A public background session webinar was held at 13:00-14:30 CET on Friday, 13 December 2024 to present the draft application paper and answer any questions from stakeholders. Click here for details and registration.