The growing integration of artificial intelligence and advanced computing capabilities in insurance markets raises fundamental questions about welfare, fairness, and the distribution of economic value between insurers and policyholders. While these technologies may increase total economic welfare, there is no guarantee that the resulting benefits will be distributed equitably.
From the insurers’ perspective, AI enables more precise risk management, reduced uncertainty, and improved decision-making processes. These gains can translate into lower operational costs, higher profitability, and greater business stability. At the same time, the very same capabilities may disadvantage certain policyholders. Algorithmic pricing, risk segmentation, and automated decision-making can lead to insurance exclusion, reduced access to coverage, or adverse outcomes in claims handling, particularly when decisions are opaque or difficult to challenge.
These dynamics bring ethical considerations to the forefront. What constitutes algorithmic fairness in insurance markets? How much transparency should be required when decisions are made by learning systems? And how can accountability be ensured when algorithms directly affect individuals’ financial security and well-being? Such questions highlight power asymmetries between insurers and policyholders and raise concerns about the ability of individuals to understand, contest, or influence decisions that shape their access to protection.
Legal, regulatory, and ethical frameworks play a decisive role in addressing these challenges. Laws and regulations do more than protect rights; they define the boundaries within which technology can operate and determine how the economic value generated by AI is distributed. These frameworks establish how far efficiency gains for one party can go without imposing disproportionate harm on the other, and how to balance economic optimization with principles of fairness, transparency, and protection of vulnerable populations.
Ultimately, the future of insurance in the algorithmic era will not be determined by computing power alone, but by collective choices about governance, ethics, and regulation. The legal and regulatory decisions made in the coming years will shape not only market structures and business models, but also public trust and the social legitimacy of insurance in an age increasingly defined by artificial intelligence.
About the Author
Kobi Bendelak, CEO of InsurTech Israel, leading the Israeli InsurTech ecosystem and operating the Israeli InsurTech Accelerator Program since 2021.
These articles are based on ongoing conceptual and research work exploring the economic, legal, regulatory, and ethical implications of artificial intelligence and advanced computing capabilities on the insurance industry.
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