Overview
As artificial intelligence becomes more integrated into insurance claims handling, the nature of the interaction between insureds and claims systems is changing.
One of the most important emerging issues is transparency — specifically, whether insureds are aware they are interacting with an AI system rather than a human adjuster.
Failure to clearly disclose AI involvement can introduce regulatory, compliance, and trust-related risks, even when claim decisions are otherwise accurate.
The Emerging Risk
In many AI-driven claims environments, virtual adjusters are designed to simulate human interaction.
They may:
- ask questions conversationally
- explain coverage
- guide the insured through the process
- respond in natural language
Without clear disclosure, these interactions can be indistinguishable from those with a human adjuster.
As a result, insureds may:
- assume they are communicating with a licensed professional
- rely on perceived human judgment
- misunderstand the capabilities and limitations of the system
This creates a disconnect between perception and reality.
Why Regulators Will Care
Regulators and Departments of Insurance (DOIs) focus heavily on transparency and fair dealing in claims handling.
Failure to disclose AI involvement may raise concerns related to:
- Unfair Claims Settlement Practices
- potential misrepresentation of the claims process
- lack of informed participation by the insured
- erosion of trust in insurer communications
If an insured reasonably believes they are interacting with a human adjuster, when in fact they are not, regulators may question whether the process was sufficiently transparent.
The Expectation Gap
The core issue is not simply the use of AI — it is the expectation gap it creates.
Insureds interacting with what appears to be a human adjuster may expect:
- individualized judgment
- flexibility in decision-making
- professional discretion
- nuanced interpretation of facts
AI systems, however, operate based on:
- programmed logic
- data inputs
- predefined rules
When this difference is not disclosed, insureds may unknowingly rely on assumptions that do not apply.
Consequences of Non-Disclosure
Failure to clearly disclose AI involvement can lead to:
- Increased disputes when outcomes differ from expectations
- Claims of unfair or misleading practices
- Complaints to regulatory bodies
- Challenges related to good faith handling
Even when decisions are technically correct, lack of transparency can shift focus from what was decided to how it was communicated.
Link to Failure Scenario
This risk is illustrated in the Failure Library scenario:
“Failure to Disclose Use of AI in Claims Handling”
In that scenario:
- the insured interacts with a virtual adjuster
- no disclosure is provided
- the insured assumes human involvement
- the claim proceeds under that assumption
This creates a process that may be viewed as incomplete or misleading.
Regulatory Risk Indicators
Carriers implementing AI in claims handling should monitor for:
- Lack of clear disclosure language in AI interactions
- Insured confusion about who is handling the claim
- Complaints referencing misunderstanding of the process
- Absence of documented consent or acknowledgment of AI use
- Increased escalation requests following AI interactions
These indicators may signal transparency-related exposure.
Gold Standard Approach
To reduce regulatory risk, AI systems should incorporate clear and consistent disclosure practices.
1. Provide Clear Initial Disclosure
Inform the insured at the beginning of the interaction that they are communicating with an AI system.
2. Explain the Role of the System
Clarify:
- what the AI can do
- what its limitations are
- how decisions are made
3. Offer Human Interaction
Provide an accessible option to connect with a human adjuster at any point.
4. Reinforce Transparency
Ensure that communication throughout the interaction does not create confusion about the nature of the system.
ClaimSurance Insight
Transparency is not a feature — it is a requirement.
AI systems that simulate human interaction without disclosure risk creating a process that is perceived as misleading, even when functioning as intended.
Clarity about who — or what — is handling the claim is essential to maintaining trust.
Related Failure Scenario:
Failure to Disclose Use of AI in Claims Handling
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