AI in Insurance: Navigating Opportunities and Risks

Kroll Bond Rating Agency (KBRA) has released its latest research report, AI in Insurance: The Future Is Now, exploring the growing role of artificial intelligence (AI) in the insurance sector. According to KBRA, AI adoption has accelerated, with many insurers actively integrating AI-driven processes to improve efficiency, enhance employee productivity, and increase customer satisfaction. The rating agency warns that these benefits could quickly become industry standards, making AI a competitive necessity rather than a differentiator. Insurers that fail to embrace AI risk falling behind their peers.

Per KBRA, AI is poised to transform several core insurance functions, including marketing, distribution, underwriting, claims processing, and customer service. AI can automate paperwork, streamline decision-making, and enhance self-service tools for policyholders. In underwriting, AI can process vast amounts of data, such as policy terms and real-time information from wearables and telematics, allowing for more personalized and risk-based pricing decisions. For claims processing, AI can improve workflow efficiency, assist in coverage determinations, and even leverage computer vision to analyze visual claim data, leading to faster and more accurate settlements. AI-powered fraud detection is also becoming a valuable tool, helping insurers identify fraudulent claims more quickly and reduce overall costs.

According to the rating agency, the effectiveness of AI initiatives depends largely on data quality and availability. While AI has the potential to drive major efficiency gains, KBRA notes that insurers still using legacy systems or outdated data storage methods may struggle to maximize AI's benefits. Developing a well-structured data strategy is a crucial prerequisite for successful AI implementation.

Per the report, AI adoption also introduces risks that insurers must carefully navigate. Industry participants have raised concerns about unintentional bias in AI models, cyber-security vulnerabilities, and compliance with evolving regulations. The report highlights that insurers need to ensure AI-driven decisions align with legal and ethical standards, particularly as regulatory frameworks continue to develop. The National Association of Insurance Commissioners has already issued guidance through its Use of Artificial Intelligence Systems by Insurers bulletin, which 21 US jurisdictions have adopted as of early 2025. Additionally, California, Colorado, Texas, and New York have implemented AI-specific insurance regulations.

KBRA states that a comprehensive AI governance strategy is essential for managing these risks. Insurers should integrate AI oversight within their broader enterprise risk management frameworks, ensuring accountability, transparency, and continuous monitoring of AI applications. According to the report, insurers that develop multidisciplinary teams to evaluate AI-use cases, set clear implementation goals, and establish safeguards against unintended consequences—such as bias or data breaches—will be better positioned to manage AI risks effectively.

According to KBRA, insurers operating across multiple regions must also stay informed about differing AI regulatory approaches. The report references the European Union's AI Act, which classifies AI applications into three risk categories: banned applications, high-risk uses with strict compliance requirements, and lower-risk applications that remain largely unregulated. KBRA notes that in the United States, AI regulations remain fragmented, with federal oversight still evolving following recent political shifts. The agency warns that insurers must stay vigilant as global AI regulations continue to change.

KBRA concludes that AI offers significant potential for the insurance industry, enabling greater efficiency, improved decision-making, and enhanced customer service. However, to fully capitalize on AI's advantages, insurers must ensure proper data governance, risk management, and regulatory compliance. As AI adoption continues to accelerate, companies that fail to develop and implement robust AI strategies risk falling behind in an increasingly competitive insurance landscape.