Six out of ten insurers expect artificial intelligence to significantly transform their business models within the next one to three years, according to a survey by AM Best.

Around two thirds of respondents said they sought to increase their AI investment in the next one to two years, with the main goals being to improve employee productivity, lower operating costs and assist with underwriting functions for risk selection and pricing.

As for the anticipated impact on jobs, 31 per cent of respondents said there would not be any material change to staffing with 37 per cent expecting employees to be redeployed to higher-value work.

“AI is being deployed in insurers’ back, middle, and front offices, leaving the current workforce worried about job security,” the credit rating agency’s report stated.

“While there are some major headlines floating around asserting AI is a threat to white-collar jobs and these roles could be obsolete in the coming decade, it is important to bear in mind that the human element is still a crucial component in most insurance roles.

“According to recent earnings calls, many industry leaders view AI as a way to reshape and assist the current workforce, not eliminate it.”

Data readiness, security and privacy and integration with legacy systems are seen as the largest impediments in deploying AI.

The report, “Artificial Intelligence Appears to be Ready, But Most Insurers Are Not”, documents results from more than 150 respondents, made up of rated insurers and MGAs.

Insurers are rapidly deploying AI, with 41 per cent stating that their organisation is actively using AI across core business areas and nearly 20 per cent agreeing or strongly agreeing that their organisation is at an advanced stage of implementation.

A majority of respondents said their company has a formal AI policy in place. The survey also found that insurers are less concerned with change resistance and third-party model risk but viewed the potential for breaches of AI systems by bad actors, or data readiness, as significant challenges to AI implementation.

Kaitlin Piasecki, industry research analyst at AM Best, said: “AI systems are heavily dependent on high-quality, clean and well-structured data. Legacy systems can create significant barriers when implementing AI because they simply were not built for this type of data integration.

“Many of these legacy systems are outdated and store data in inconsistent formats lacking standardisation.”

Sridhar Manyem, senior director, industry research and analytics, at AM Best, added: “AI systems can produce unreliable outputs when underlying data is of poor quality, fragmented across legacy systems, insufficiently governed or lacking appropriate context.

“Insurers that have invested in modernising their legacy systems and have robust data governance will find it easier to integrate AI into their workflow.”

For those that have implemented AI solutions, 63 per cent of respondents reported a small improvement in workforce productivity and satisfaction, with 11 per cent reporting a significant improvement.

“Given that this technology is still relatively new, a return on investment in AI would be difficult to measure at this stage; the cost benefits will likely take years to materialise,” said Jason Hopper, associate director, industry research and analytics at AM Best.

“Insurance roles, especially those that require judgment, critical thinking and accountability, were ones respondents felt AI would not yet be able to fully replicate.”