Global reinsurer Swiss Re expects AI-driven disruption to redistribute rather than increase insurance demand as the boom in artificial intelligence (AI) expands new insurable asset classes and adds new liability and cyber risk exposures.
New research from Swiss Re Research Institute explores the rise of artificial intelligence and its impact on macroeconomic and insurance risks, noting that the U.S. economy faces large, concentrated investment and asset price impacts while the productivity and output growth brought about by the technology has been rather slow.
According to Swiss Re Institute, a heavily AI-driven sustained 20% decline in S&P 500 valuation multiples could erode at least $10 trillion in household net worth and reduce U.S. aggregate demand by 1-2 percentage points
(ppts) or more in the future.
Specific to the insurance industry, the study states, “AI is expanding new insurable asset classes, from trillions of dollars invested in data centers to millions of kilometers of new power lines. AI also increases insurance exposure to new liabilities and cyber risks, with less than 5% of the insurance companies we analyzed disclosing the financial impact of AI adoption. Over time, we see AI-driven disruptive reallocation rather than increased insurance demand, which may require aggressive portfolio and underwriting adjustments.”
The Swiss Re Institute expands on the first point, drawing on research from McKinsey, which suggests that under certain scenarios, investment in data center infrastructure could reach $7 trillion by 2030, suggesting that in the short term, insurers may see premium growth in new asset classes.
The report written by Mahir Rasheed, senior economist at Swiss Re Institute, continues: “This rapid expansion is likely to increase demand for insurance in the short term. We expect companies will seek to cover increased risk exposures from new infrastructure and artificial intelligence systems.”
Swiss Re expects increased demand for its engineering and construction insurance business, while liability insurers expect increased demand related to third-party risks, and demand for trade credit insurance is also likely to increase.
“In the medium to long term, however, growth in demand may start to reallocate rather than simply grow. We expect AI to disrupt industries, create ‘loser’ industries (AI reduces demand for physical assets, labor and risk exposure), reduce risk exposure, reduce the assets that need to be insured, and compress traditional business models. This may change demand patterns in the medium term, as certain business lines see sales decline while new ones grow.
“The ultimate impact is likely to be a reallocation of premium volumes rather than continued strong growth. Insurers and reinsurers may want to assess this upside and reallocation risk: where are new growth points, where traditional demand may shrink, and how to reposition underwriting, capacity and product design accordingly,” Swiss Re explained.
The company’s analysis shows that currently, property and casualty insurers are leading the way in adopting AI in underwriting and claims, while life and health use cases tend to focus more on distribution and operations for customer engagement, as well as chatbots and enterprise productivity.
“Insurers are seeking operational benefits from AI in the form of increased efficiencies, time savings and enhanced workflows, yet less than 5% of our analysis of insurance use cases of insurers have disclosed any financial impact. At this stage, use cases are largely incremental, but there is potential for broader enterprise transformation. In the short term, we do not expect AI to drive labor market disruption, as most insurers aim to augment human resources rather than fully automate processes. Instead, AI may play a role in reducing future talent shortages, depending on the pace of adoption and regulatory developments,” the report reads.
Importantly, Swiss Re Institute also discusses the new risks and challenges that artificial intelligence brings to insurers’ underwriting profitability. This includes lowering barriers to abuse of the legal system in cases of liability litigation, fraud, data bias, cyber breaches, business disruption and concentration, performance issues, etc.
and intellectual property issues.
“AI can amplify cyber threats through deepfakes, data manipulation and fraud, while increasing reliance on a few large cloud and AI service providers increases systemic and concentration risks,” the Swiss Re Institute said. “Algorithmic failures or biased decision-making could lead to D&O, E&O and professional liability claims as boards and professionals face scrutiny for governance failures or model design flaws. Likewise, non-physical business disruption risks from AI or digital disruptions may spread through supply chains, creating new forms of accumulation in insurance portfolios.”
As the report highlights, data on the experience of loss remains very limited and, although it improves over time, it can be difficult for forward-looking models to properly understand the changing situation.
Swiss Re Institute also highlighted the potential for complex claims scenarios and potential accumulation of risks driven by AI risks that rarely align with traditional policy boundaries.
“From a profitability perspective, AI’s efficiency gains and lower expense ratios will not necessarily translate into sustained underwriting profitability. Competitive market dynamics tend to pass on cost savings to policyholders, limiting margin improvements and keeping industry operations close to the cost of capital. Additional potential for deploying AI lies in enhancing risk selection, prevention, customer experience and claims management, thereby improving resiliency while improving efficiency. In this case, AI-led productivity improvements may encourage competition and promote premium growth, which has a more ambiguous impact on underwriting profitability,” the analysis concluded.
