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FRM Part II · FRM Exam Part II · The Financial Stability Implications of Artificial Intelligence

An insurer uses one cloud-hosted AI model provider for claims triage. Supervisors worry about the opacity of the provider's model and data sources. Which action best addresses the third-party risk while remaining consistent with FSB-style policy suggestions?

The best action is to map critical AI dependencies, secure audit and information rights in contracts, and prepare exit, substitution and fallback plans. This reduces opacity and concentration risk, since accountability stays with the insurer even when the service is outsourced.

  1. ARely on the provider's certification and avoid any internal testing to prevent duplicate effort
  2. BMap critical AI dependencies, negotiate audit and information rights, and develop exit and substitution plans with fallback processesCorrect
  3. CMove all claims triage to the same provider's other products to simplify oversight
  4. DStop monitoring because liability is contractually transferred to the provider

Explanation

Mapping dependencies, securing information and audit rights, and having exit or contingency arrangements reduce both opacity and concentration risk. Relying on certification or consolidating further increases dependence, and contractual liability transfer does not remove regulatory accountability.

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