Josh Smallwood
Solutions Expert
Josh is a Solutions Expert at Clearwater. Joining Clearwater in 2016, he’s assisted insurers overcome their investment operations challenges, including regulatory reporting, accounting guidelines, and consolidating disparate systems. Currently based in London, he is helping European insurers and asset managers optimise their investment operating models and create a tailored investment solution to suit their needs.
In 2023, PwC and the Centre for the Study of Financial Innovation (CSFI) released their Insurance Banana Skins Report, scoring the top risks facing today’s Insurance Industry. We are reviewing five of these risks that we see our clients concerned about. This article is the fifth in the series. Read our other’s here: Regulation, Technology, Interest Rates, Climate Change.
The long-awaited power of Generative AI is upon us and has unsurprisingly been introduced as seventh place in the report, underscoring the power and risks the market sees behind this innovative technology. This is concisely summarised within the report by a respondent who said, “AI may become a great opportunity, but a lack of regulation and security may become an even greater risk.”
Institutional Investors and firms already integrating AI into their operating models are doing so with the following use cases, to provide a few examples; utilizing AI to create seamless customer experiences, capture accurate records of a conversation and querying AI to do some analysis of their data.
What Are the Risks?
One of the main concerns regarding Generative AI is the lack of transparency and potential for inaccuracies. Open AI CEO Sam Altman demonstrated in a video how anyone can build their own Generative AI app in just a few minutes (1). While this showcases the accessibility and ease of use, it also raises questions about the accuracy and reliability of the AI model. Without proper expertise, incorrect information generated by the AI could lead to flawed analysis and strategic decision-making.
Though accuracy and overreliance on these models may take some time before we start to see their effects in strategic decision making, we already are seeing examples of where a lack of QA and trust in the model is causing real problems for quick adopters. Discrimination biases have surfaced in some firms attempting to use AI for credit assessment and recruiting tools, leading to a gap in credit lines between men and women and showing a favourability to male candidates in the hiring process.
The quickness of adoption in the market juxtaposed with the less agile legal and regulatory environment could lead to an overreliance on an AI Model that sits in the middle of key decision-making processes.
What Are the Benefits?
Automation, Automation, Automation: Elimination of mundane tasks, scalability in handling more clients and complex tasks without increasing headcount, and the ability to provide data-driven analysis allows professionals to spend more time on strategic activities.
Improved Efficiency: Leveraging AI can lead to efficiencies not just in the automation of mundane tasks but can be leveraged to improve efficiencies around reading and analysing PDF statements or other hard-to-automate activities.
Support for Increasingly Complex Asset Classes: As mentioned in a previous article in this series (2), the industry continues to see a shift of focus to alternative asset classes in the never-ending search for greater yields. The complexities of these instruments are coupled with the manual nature in how data is transmitted and extracted. There will always be a case for human interaction with this manual data, but there are many use cases where AI can be leveraged to read and analyse multiple PDF statements and flush out key metrics. After all, no one graduated University with the goal to spend copious amounts of time reading PDF statements.
How We See Clients Adapting
The introduction of AI poses a lot of questions, risks, and opportunities. There are many indicators that suggest early adopters with a clear vision will gain an absolute advantage against peers. Partnering with a technology vendor can assist in leveraging existing infrastructure and building that clear vision for your operating model.
To see how Clearwater is leveraging AI to support our clients and provide analysis and insight into their data, schedule a demo today. We are dedicated to helping clients navigate the opportunities and risks associated with Generative AI, particularly in the realm of private assets.
(1) https://www.linkedin.com/posts/zainkahn_absolute-madness-openai-ceo-sam-altman-activity-7128011745868050432-Ox5K?utm_source=share&utm_medium=member_desktop
(2) https://clearwateranalytics.com/resources/blog/technology-a-key-investment-risk/