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Welcome to the Pride,

Every week, our team reviews 200+ insurance articles.

We summarize the top articles along with our hot takes around how we think they might impact the global insurance markets.

Here's the three to scope this week…

What is Generative AI?

Generative AI is a type of artificial intelligence that can create things like text, images, code, or data by learning from existing information.

Unlike traditional AI that follows strict rules, generative AI can learn new skills that weren't specifically programmed.

These systems learn from large amounts of data to understand context, subtlety, and creativity.

It’s like having an expert assistant that works at lightning speed.

Real world example: a teacher needs to create lesson plans. They input curriculum guidelines into an AI tool. Within minutes, they can receive a semester's worth of lesson plans, activities, and assessments ready for customization.

Generative AI in Insurance

In our world of insurance, generative AI is automating complex tasks and analysis across the industry.

• Brokers are primarily focused on using it for back-office functions.
• Underwriters are using AI for data analysis.
• And carriers are in various stages of its use for claims processes.

All of us are facing new regulatory issues when implementing AI amidst all of this process execution.

Brokers Using AI: Admin Tasks vs. Coverage Risk ​

AI can turbo‑charge brokers’ routine tasks like submissions and data collection.

It also reduces back-and-forth with carriers by sharing info across audits and claims.

But for brokers, there's a real risk in relying too much on AI; it's great for back, middle office functions and basic risk checks, but keep a human-in-the-loop for coverage analysis and high impact decisions. (source)​

Our Take

For now, limit AI to administrative tasks and back-office work.

Coverage analysis and loss modeling create serious exposure with limited validation options.

The fundamental question remains unanswered…

How do you validate AI-generated simulation data or coverage determinations?

Ask your broker exactly how they're using AI.

If they're using it as a single source of truth for coverage analysis…

That’s a massive red flag.

When it comes to policy reviews, human expertise remains essential.

Want to understand where the line should be drawn with AI in broker services? Contact LION Specialty for straight talk about how we're approaching AI without putting your coverage at risk.

Bad Faith Claims: The Trifecta of Exposures

Bad faith claims were already serious business.

With AI in the mix?

They’re taking on new life with added regulatory exposures creating a trifecta of exposure you can't afford to ignore.

Here's your 3-bullet summary:

• Bad faith claims now have three possible dimensions. Pre-AI, these claims involved just liability and the occasional punitive damage award for "outlier" cases. AI now adds regulatory exposure as a critical third dimension.
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• The trifecta means exponential risk. Bad faith liability + punitive damage awards + regulatory scrutiny = perfect storm for claims involving AI decisions.
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• Regulatory landscape is shifting fast. With 21-22 states weighing in on AI and a regulatory environment in flux, carriers face uncertainty at every turn.

So what?

State regulators are monitoring AI usage in claim disputes.

Regulators don't ask if you use AI anymore.

They know the answer. If there’s an issue regarding claims processes, they want to investigate the what, why, and the how specifically.

The inquiry:

• Did you do all the right due diligence when hiring your AI vendor?
• Can you document your implementation process?
• Have you cleared changes with state regulators?

Your institution could be looking at dual regulatory and bad faith exposure if AI adversely impacts any claim issue driving the bad faith allegation.

That's new territory.

Our Take

There's significantly heightened exposure now because of AI in claims.

Bad faith claims used to be straightforward: liability claim + the rare punitive damage award.

Now the regulatory element creates a trifecta of exposure.

Any AI vendor helping with claims needs extremely diligent vetting, and carriers must document why they chose that vendor.

Need help navigating this trifecta of exposure? Contact LION Specialty to ensure your program addresses these emerging risks.

Human Judgment: Irreplaceable in Underwriting ​

AI crunches numbers better than humans ever will.

But underwriting isn't just about numbers; it involves judgment and accountability.

Credibility and validity must be explicitly proven. Underwriters need to clearly demonstrate how AI influences decisions and verify there is no hidden bias. (source)​

Our Take

Insurance companies should be worried about several key issues related to AI in their underwriting businesses:

• The challenge of determining whether AI can truly develop human-like judgment needed for critical underwriting decisions
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• The risks of giving AI too much decision-making authority without proper human oversight
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• The potential liability issues that arise when companies implement AI systems - including questions about management accountability when AI identifies risks that humans fail to review
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• The challenge of properly underwriting companies that utilize AI, as risk profiles vary widely depending on the AI's specific use case and potential failure modes
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• The regulatory landscape around AI, which is still evolving with disagreements about how to define AI and what regulations should focus on
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• The predictions of a more colorful claims’ landscape in terms of litigation and regulation emerging in the next five years
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• The need to invest significant resources in understanding and researching AI technologies to remain relevant as an insurer

It’s going to take a lot of work, and a great deal of effort for carriers - to say the least!

Want to benchmark both your current carriers’ and your own AI practices? Contact LION Specialty for a dual-assessment today.

The Bottom Line

If you're a director or officer at an FI - your personal assets are on the line if your company faces a major claim.

That's why we created the D&O Contract Vigilance Blueprint.

It's a 5-day email course to help you:

• Secure better D&O insurance: Learn how to avoid common policy mistakes and identify overlooked coverage gaps.
• Protect your personal assets: Understand your potential liability and take steps to mitigate your risks.

​>>>Get the D&O Contract Vigilance Blueprint​

Don't wait until a claim hits to find out you're under-protected.

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Stay Covered,

Natasha & Mark

Co-Founders and Managing Partners

LION Specialty

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