Picture a rainy Wednesday morning in Sandton, sometime in the near future. A claims handler opens their laptop. Right away, things move much faster than before. For every new email, the company’s Artificial Intelligence (AI) system drafts a suggested reply. The inbox is also lighter. A public chatbot handles most client and broker queries because it has been trained on policy wordings and continues to improve. Need a meeting? An AI assistant schedules it, sets reminders, and even takes minutes.
The claims themselves now look different. One email involves a policyholder who collided with a driverless taxi. The chatbot has already gathered the details. In addition, an AI screener clears it of fraud. As a result, the handler only waits for the vehicle’s computer logs. Another email may involve a medical aid approving cover based on an AI diagnosis. At the same time, a pharmaceutical chatbot stands ready to answer medication queries instantly. This shift highlights how AI is transforming the insurance sector.
Then there is the professional indemnity notification. A reputable financial advisor reports that an unknown party used a deepfake video of his likeness. The video delivered bogus investment advice. Followers acted on it and lost money. As a precaution, he notifies his insurer while his attorneys assess the fallout.
AI adoption and emerging risks
None of this is science fiction. These processes already operate and are becoming common in South Africa. However, progress also introduces risk. The rapid adoption of AI has increased incidents across industries. For example, Stanford University’s 2025 AI Index reported that AI-related incidents worldwide rose by 56.4% in 2024. This trend reinforces that AI is transforming the insurance sector.
Any organisation using AI faces potential exposure. In March 2026, a California jury found media platforms Meta and YouTube liable for USD 3 million in damages related to their algorithms.
In another case, Tesla faced liability for a fatal accident involving its autopilot system. Similarly, a tribunal forced Air Canada to honour a discount promised by its chatbot. In the United Kingdom, an AI facial recognition system misidentified a woman as a shoplifter. This error led to a baseless search and emotional trauma.
Closer to home, the Financial Sector Conduct Authority (FSCA) has raised concerns about deepfake videos. These videos show prominent figures endorsing fraudulent schemes. This trend has already contributed to the final liquidation of at least one financial service provider. Meanwhile, generative AI developers face large intellectual property lawsuits over their training datasets.
Globally, lawmakers are trying to keep pace. The European Union has adopted its comprehensive AI Act. Denmark is also considering copyright protection for individual likenesses against deepfakes. In South Africa, policymakers published a draft National AI Policy Framework in 2024. They expect to gazette it for a formal 60-day public consultation process soon. However, they will likely only finalise it during the 2026/2027 financial year.
The regulatory shift in financial services
In the absence of clear legislation or policy guidelines, South African regulators and industry bodies are stepping in. They are defining rules, especially in the insurance sector. In November 2025, the FSCA and the Prudential Authority published a landmark report. It is titled “Artificial Intelligence in the South African Financial Sector”.
This joint report shows where the industry stands. Banks lead AI adoption at 52%. In contrast, the insurance sector has taken a more cautious approach, with adoption at just 8%. However, insurers plan to expand AI use in underwriting and claims management. As a result, AI is transforming the insurance sector at a measured pace.
To manage this shift, the FSCA and Prudential Authority urge financial institutions to adopt strong governance frameworks. They also require board-level oversight. In addition, they recommend recognised explainability methods. These methods ensure that AI-driven decisions remain transparent and auditable. Regulators also require institutions to disclose when AI influences decisions that affect consumers. These include credit assessments and insurance pricing.
Furthermore, AI is reshaping the fraud landscape. Criminals now use AI to create synthetic identities. They combine stolen real IDs with fake names and AI-generated images. This approach helps them bypass onboarding verification. In response, major industry bodies are collaborating. The Association for Savings and Investment South Africa (ASISA) and the South African Insurance Association (SAIA) have established a Computer Security Incident Response Team. This team monitors cyber threats, reports attack methods, and shares intelligence across the sector.
Governance, compliance and legal implications
Beyond insurance, other professional bodies are also responding. The Independent Regulatory Board for Auditors, the South African Institute of Chartered Accountants and the Association of Arbitrators have issued guidance on responsible AI use.
These guidelines will likely shape how courts apply the Kruger vs Coetzee test for negligence. This test asks whether a reasonable professional could foresee harm and take steps to prevent it.
In addition, organisations must align AI-related data processing with the Information Regulator. This alignment falls under the Protection of Personal Information Act (POPIA). The Information Regulator has already raised concerns. Data breaches in South Africa increased sharply. In fact, security compromise incidents rose by 40% in 2025 compared to the previous year.
The insurance response – silent vs affirmative cover
These changes have fundamentally shifted the risk landscape. As a result, businesses must secure adequate insurance coverage. Currently, most policies address AI risks through silent cover. This means policies do not explicitly mention AI, but the risks fall within general wording.
By contrast, affirmative cover directly addresses AI risks. As AI-related claims increase, coverage disputes will also grow. Therefore, insurers will likely move toward clear and explicit AI policies.
For businesses adopting AI, prioritising comprehensive AI coverage is essential. In addition, they must implement strong governance frameworks. They must also ensure POPIA compliance and monitor regulatory developments closely.
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| Kim Rew | Partner | mail me | | Jered Shorkend | Associate | mail me | |
| | Webber Wentzel | | |
