April 30, 2018 Articles

Artificial Intelligence and Insurance: A Glimpse of the Future

The growing use of artificial intelligence in business operations and in the insurance industry may provide interesting new twists on traditional legal issues that are commonly disputed in the insurance coverage arena

by John M. Sylvester and Ralph C. Surman Jr.

Advancements in artificial intelligence (AI) are happening in nearly all industries, such as the use of IBM’s Watson to help diagnose patient diseases and prescribe treatment plans, the development of autopilot technologies in cars to obviate the need for human drivers, and the expansion in industrial use of intelligent robots that not only perform work previously done by humans but also learn how to do that work more efficiently and effectively. While AI technologies are moving forward with lightning speed, the corresponding legal and regulatory systems are not necessarily keeping pace with the rapidity of change.

One area of business in which the disruptive technologies of artificial intelligence will present challenges and opportunities is the insurance industry. Fundamental issues that have steered the underwriting of insurance policies and the handling of claims for hundreds of years, such as concepts of uncertainty, fortuity, predictability, disclosure, and good faith, among others, take on a new dimension when the principal actors to be analyzed are intelligent machines, rather than human beings. Specifically, if the decisions, judgments, and actions that result in the issuance of an insurance policy or the occurrence of a loss or the payment of a coverage claim are being made by artificial intelligence rather than human actors, how does that fact affect the application of traditional legal principles governing insurance law?

This article considers some legal issues that often arise in the context of coverage disputes between policyholders and insurers and reviews those issues in the context of artificially intelligent actors that have a substantial role in the conduct in question. For example, the concept of “expected or intended” is one that can be the subject of coverage disputes when claims arise. Also, the concept of timely notice of claims, along with alleged prejudice from late notice, is often debated between policyholders and insurers when claims are presented. Moreover, questions regarding a policyholder’s alleged misrepresentations or material omissions (or both) in applying for an insurance policy can be the subject of an attempt by an insurer to void an insurance policy. Finally, whether an insurer has satisfied its legal duties to a policyholder of good faith and fair dealing can be the point of contention in the handling of an insurance claim.

This article can only scratch the surface of the impact of artificial intelligence on resolution of various insurance issues, but out hope is to provide food for thought among insurance lawyers who will be confronting these issues in the coming years.

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