“Learning from your neighbours”: prudential provisions of the EU AI Act for the UK insurance supervisory regime.

This paper focuses on the prudential regulation and supervision of UK re-insurance undertakings in relation to Artificial Intelligence (AI) considerations. Specifically, it presents a critical analysis of the prudential provisions of the EU AI Act, which could be adjusted and adopted in the UK regulatory and supervisory regime, in line with the Prudential Regulation Authority (PRA)’s approach to insurance supervision. Building on the gaps identified regarding the supervisory approach to AI applications within the insurance value chain, it presents proposed developments based on the EU AI Act. The purpose of this paper is to present a critique on the learnings from the EU AI Act for UK financial regulators regarding the prudential supervision of re-insurers. Beyond the EU AI Act, the principles from the IAIS are also discussed to complement the recommendations for UK regulators. The contribution of this paper is in providing advances to the UK’s approach to (a) regulate and (b) supervise AI applications within insurance. In relation to prudential supervision of AI applications and uses within the insurance value chain, a principles-based vs. a rules-based approach is examined, commenting on their cross-comparison. Regulating and supervising AI applications within the UK insurance industry is of high importance, linked to AI uses and the inherent purpose of insurance. In particular, referring to the growth and capacity of the insurance market, with increasingapplications of AI and the insurability of risks, bridging the insurance protection gap and making insurance more affordable via increased accuracy of risks and improved underwriting, both core practices of prudential nature, are important. Overall, this research adds to the growing literature about the regulatory implications regarding AI, using the UK insurance industry as a case study, by commenting on the EU vs. UK regulatory regime and supervisory approach from a prudential lens.