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AI and ERM: Working Well Together to Build Competitive Advantage

Artificial Intelligence, or AI, is a buzzword we keep hearing more and more these days. In fact, if I go a few hours without hearing it, I would be shocked.

It’s not surprising when you consider that 77% of companies are either using or exploring how they can use AI in their businesses according to research by Exploding Topics. Or take the popular advanced language model ChatGPT, which upon its release in late 2022, reached 100 million users in just two months!

Since this time, other platforms like Google’s Gemini, Microsoft’s CoPilot, Zoom’s AI Assistant, and others have become readily available, not to mention the countless ways of creating a custom model.

Even if your company has not accepted AI formally, it is highly likely someone, somewhere within the company is using it in their job.

The potential uses of AI are literally endless and include any activity, from customer service and ecommerce, to healthcare, agriculture, supply chain optimization, and much more.

As discussed in my first foray into this topic, AI will not improve existing methods but rather fundamentally change how companies operate and make decisions.

Naturally, AI can be harnessed by experienced ERM professionals to help the company better navigate uncertainty and be more proactive.

At its core, when used properly, AI has the potential to offer everyone, including ERM, more streamlined processes and more information to (hopefully) better inform decision-making, among other benefits.

Its more ardent proponents like Clayton Scott of LinkSafe believe that

“Risk management is a field that has always relied on making informed decisions based on data and experience. With the advent of Artificial Intelligence (AI), risk management is undergoing a transformation that will change how decisions are made. AI has the potential to revolutionize the way risk managers analyze data, identify trends, and predict outcomes.”

The level of data gathering and analysis that AI tools are capable of would have been unfathomable even a decade ago. One of its biggest advantages is the speed at which an AI tool can gather, sort, summarize, and even provide a recommendation, which dwarfs what an individual or group can do in the same amount of time.

In reality, the list is endless, but here are some of the ways ERM professionals can use AI tools:


Remember, there are other company- and industry-specific examples we could list too.

It’s important to note that AI cannot do everything.

Unless it’s an internally developed and managed tool, what AI will NOT be able to do is connect risk information to strategic objectives, business objectives, and strategic initiatives since external tools will not, and should not, know what your company is planning for the future.

After all, this would mean sharing your strategy – your confidential information – with a publicly available tool!

A benefit of enhanced research and data analysis is that it frees up time to focus on longer-term strategic decision-making. Achieving goals and creating a competitive advantage will be even more important in the years ahead. AI enables everyone from department managers to ERM to executives more time to focus on this critical task.

However, there is a catch – a double-edged sword if you will…

With opportunities comes risk…the ability of AI to gather, sort, and report such large amounts of information is also its biggest source of risk.

You’ve certainly heard the saying – “Garbage In, Garbage Out.”

What this means is that any outputs from an AI tool will only be as good as the information used to “train” it. It doesn’t take much to find examples of how AI tools have produced erroneous outputs that landed an individual or company in hot water.

Remember, if using an external tool like ChatGPT or others that are not housed within your firewalls, it’s important any sensitive company information be kept off it. (The one exception to this recommendation is if your company is using a technology called a vector database as described here.

This is why only experienced ERM professionals with solid foundational practices should use AI.

Inexperienced risk professionals using the tool could end up creating even bigger problems than doing nothing at all, or as Russell Price, chairman of the ISO Risk Management Committee states:

“For many, the ability to use AI capabilities as a tool in many situations will really help an experienced, capable risk manager a lot. For others who don’t take it seriously or are covering the cracks of poor practice they will make bigger mistakes, more frequently.”

Besides bad information and outputs , the other potential consequence is increased scrutiny from regulators. This prior article discussed some questions a company may receive from regulators about how it’s using AI. At the time of this writing, reports are emerging of proposed AI regulations at the federal level, plus model legislation from the National Association of Insurance Commissioners has been developed to regulate the use of AI in the insurance industry.

The important thing to remember about AI is that it is not a magic bullet! AI is simply another tool to complement robust ERM practices – it is not a replacement for the practitioner as some are in the habit of saying.

It will change the nature of the role though and require risk professionals to maintain a growth mindset and develop skills that technology cannot replace.

With proper due diligence and solid processes behind it, generative AI tools like ChatGPT can be a great tool for gathering information and streamlining processes.

Just like any tool, AI should be used judiciously, which is why formal policies around its use should be a company’s top priority, especially considering how many employees may be using it already without the knowledge or consent of the company.

Is your company using AI tools like ChatGPT, Gemini, or something developed in-house? Are there any formal policies around their use?

There is so much we could discuss on this subject. As always, I am keenly interested in learning more about your experience with AI. Feel free to leave a comment below or join the conversation on LinkedIn.

If your company is struggling the understand how to best harness AI technology, or you are simply looking for more effective ways to conduct basic ERM activities, please feel free to reach out to me directly to discuss your specific situation and a potential path forward.

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Meet Carol Williams, SDS Founder & Lead Strategist

To our readers:

This blog was launched to provide strategy and risk practitioners with a go-to resource to better guide their efforts within their companies. Thank you for bringing me and my team along to be part of your journey towards better risk management, strategic planning and execution, and overall decision-making. Happy reading!

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