Last month, Paris played host to the Artificial Intelligence (AI) Action Summit, which saw over 1,000 stakeholders from the private sector and civil society gather to discuss managing the AI transition while protecting individual freedoms. Amid accelerating global AI development, it’s a consideration on the minds of many across the insurance market as they seek to understand the full implication of what AI will mean for their businesses.
Sharing insights into some of the current – and future – legal implications of AI on the insurance industry, Rosehana Amin (pictured), partner at Clyde & Co, noted that regulators are turning a closer eye to AI governance, which has important legal implications for the insurance industry. In the UK, there is no single comprehensive AI regulation. Rather, she said, the UK is adopting a sector based approach based on a set of principles to manage AI risks.
“However, the EU introduced its AI Act in 2024, which provides a comprehensive regulatory framework for AI for organisations doing business in the EU,” she said. “We anticipate some regulators to move towards the EU’s approach in the future, while seeking to maintain a pro-business approach.”
From a policy coverage perspective, Amin highlighted that ‘silent AI’ will need to be addressed in the same way the insurance industry grappled with ‘silent cyber’ several years ago. Insurers should give thought as to whether existing insurance policies may provide inadvertent or non-affirmative AI cover to avoid coverage issues arising.
“From a practical and operations perspective, as insurers increasingly integrate AI systems into their operations, it is important that insurers have robust data governance policies in place to comply with data protection regulations,” she said. “This includes issues regarding data security and data retention.”
Aside from regulation, there are also ethical questions to consider, she said, particularly in relation to consumer protection. Regulators are keen to ensure that the use of AI systems in the insurance industry - whether that be during underwriting or claims handling - results in a fair outcome for consumers. “This includes protecting against the risk that the machine learning process underpinning the AI system does not develop inherent biases and ensuring AI systems do not produce ‘hallucinated’ results.”
As to how these risks might evolve going forward, Amin noted that the regulation of AI is a fast-moving landscape. “We anticipate regulators to introduce increasingly specific, comprehensive regulatory frameworks tailored to AI including the use of AI in the insurance industry,” she said. “In the UK, the Artificial Intelligence (Regulation) Bill passed its first reading in the House of Lords on March 4, 2025.
“The Bill seeks to establish an AI Authority with supervisory authority over sector-specific regulators to ensure alignment in approach and sets out principles for AI regulation. Similar legislation is being introduced at a state-level in the US, while countries like Japan and Singapore are actively developing their AI regulatory frameworks. We are keenly watching these developments and are actively considering their implications for the insurance industry.”
As the use of AI becomes ever more pervasive, it’s likely to result in a greater focus on consumer protection. This may include additional regulations aimed at preventing discrimination. The market may also see regulations which look to boost transparency, she said. For example, this could include regulations requiring insurers to ensure AI-driven decisions are transparent and explainable to consumers.
What is clear, Amin said, is that the successful leveraging of AI can benefit insurers across all areas of their operations. From an underwriting perspective, she said, the use of AI systems can support underwriters in assessing risks more accurately as well as spotting emerging risks ahead of time. “This will enable underwriters to make faster underwriting decisions and competitively price risks efficiently.
“AI also has benefits for claims handling. For example, AI systems can support claims handlers in assessing coverage and the outcomes of similar claims historically to decide whether to pay or challenge a claim.”
However, she said, AI does present challenges to the insurance industry. AI may lower the barrier to entry for litigation through, for example, chatbots dispensing legal advice. It also may assist claimant law firms to analyse evidence and identify effective strategies. Both of these implications may contribute to the current wave of social inflation through both a higher volume of litigation and a growth in claimant verdicts.
Looking to the future, Amin emphasised that the team at Clyde & Co are overall very positive about the benefits of AI for the insurance industry. “With a balanced approach between innovation and regulatory compliance,” she said, “insurers are well-positioned to navigate the fast-evolving AI landscape.”
