Complex issues involving multiple regulators and critical stress tests are being simplified by artificial intelligence (AI) and other technologies, the World of America Convention has heard.
Regulation is an ever-present subject for insurers and intermediaries and can become even more complex when dealing with cross-border issues.
As Symetra national vice president Fabian Gonzalez highlighted, this is multiplied further when dealing within the USA and can have a significant effect where the use of AI is concerned.
“We must keep in mind that we have to deal with 50 regulators at the state level because the insurance sector in the United States is regulated state-by-state,” Gonzalz told the audience.
“So suddenly, you might find a regulator in one state has a different opinion than a regulator in another state.
“How can you use this tool in one place, and what kind of impact might it have in another place?”
Cut million dollar bills
However, AI could also be a keen solution to some of these issues, potentially cutting down on large resource and personnel requirement and therefore reducing vast expense bills.
Gonzalez recounted an idea to implement in the international market which he was told would require about 300 hours of intellectual work and a bill of a few million dollars from hiring external lawyers to put it into place.
As a result he paused that project but in 2022 was given access to the firm’s artificial intelligence service which he used to begin assessing his plan.
“So I did the foundation for all the work, basically the artificial intelligence reviewed the 50 states of the United States regarding the law specifically applying to that topic,” Gonzalez continued.
“In the course of a day-and-a-half, it gave me an amount of information that allowed me to sit down with the legal department and start having that conversation, to tell them the idea that seemed so crazy isn’t so crazy. Here is something that is basically telling me that it could be,” he added.
Stress testing and capital management
The power of AI can also be used for existing regulatory challenges including modelling and capital stress testing.
American Fidelity president Ana Gomez explained she saw the most significant changes coming for actuarial models and central bank rules.
“From an actuarial point of view the most important changes we are going to see in three to five years, is everything that is actuarial models, which is the cashflows for 20, 30, 40, 50 years,” she said.
“All of that sort of thing is going to change a lot with artificial intelligence. For example, when we do the exercise of matching assets and liabilities, basically we are taking all our investments and matching them to our obligations.
“This is an exercise that happens behind the scenes, but it’s super important in the management of any life insurer – one of the most important topics in management is proper asset management.
“Nowadays it’s done quarterly along with a series of stress tests, the same stress tests the regulator requires and the ones you think are appropriate for your business and that’s how you arrive at calculating the capital you need to efficiently run your company.
“What actuaries predict might happen is that it’s going to be a much more dynamic process, it’s going to be real-time – it’s not going to be a process for every quarter, but daily. “We’re going to be able to see this movement of assets and liabilities to pull them exactly with our investments and do much more efficient capital management,” she added.