AI TRENDS SHAPING THE FUTURE OF PEOS

As both traditional AI and generative AI technologies evolve, the insurance industry will see some tremendous changes, which will impact both insurers and PEOs. By leveraging AI, these organizations can address critical challenges, streamline operations and enhance their service offerings.

Here are six key predictions specific to the opportunities they present for PEOs.

AI WILL DRIVE NEXT BEST ACTION RECOMMENDATIONS IN UNDERWRITING AND CLAIMS MANAGEMENT

Managing workers’ compensation and employee benefits on behalf of their clients can be time intensive and complex for PEOs. This year we will see more PEOs leverage AI to provide next best action recommendations for both underwriting and claims management. When underwriting, ‘next best action’ recommendations provide PEOs with specific suggestions to adjust coverage limits or additional data sources to better assess risk, based on AI-driven insights. Similarly, when overseeing claims, AI can suggest specific next best actions such as seeking additional documentation or identifying the optimal settlement path based on previous claims data. These advanced insights will streamline decision making, reduce resolution times and create a more seamless client experience.

SPECIALIZED GENAI WILL BECOME COMMONPLACE IN INSURANCE

PEOs are continually challenged to keep up with a multitude of evolving state and federal employment laws, joint-employer regulations, paid family leave, and minimum wage requirements. AI tools and their capabilities deliver tremendous benefits, yet they may fall short when it comes to addressing industry-specific needs, like analyzing policy language or understanding regulatory requirements.

As demand grows, purpose-built Generative AI models will evolve to produce increasingly specialized tools that can better interpret nuanced insurance data. These tools will be tailored to analyze intricate policy documents and draft tailored policy language, making them far more effective than general-purpose AI. This shift will enable PEOs to better navigate complex regulatory environments and improve their ability to design personalized insurance products to align with the diverse needs of their clients.

PEOS WILL PHASE IN DIGITAL TRANSFORMATION TO AVOID LEGACY SYSTEM OVERHAUL FAILURES

Many PEOs operating with legacy HR, payroll, and benefits management systems know they need to modernize these systems to stay competitive. However, attempting to replace all core systems simultaneously can become unmanageable, leading to delays and costly setbacks.

In 2025, we will see PEOs take a phased approach to digital transformation, implementing targeted upgrades rather than complete system overhauls. This approach will allow them to focus on specific areas like customer portals or underwriting modules, integrating AI gradually and minimizing disruption to existing operations. This incremental strategy delivers immediate value while ensuring continuity of operations for both PEOs and their clients.

SPECIALIZED DATA SOURCES WILL INCREASE INSURANCE RISK ASSESSMENT ACCURACY

A PEO’s ability to provide competitive employee benefits policies depends significantly on having accurate risk assessment. Insurers typically use established data sets like historical loss data, demographic information, and general weather reports to assess risk. Current AI models handle broad categories of risk—they rarely leverage niche data sources.

In 2025, PEOs will start to integrate specialized data sources, such as climate and health data to enhance risk assessment and underwriting for deeper insights. For example, tapping into health data, like fitness-related information from smartwatches, can help PEOs differentiate between policyholders who may look the same in a policy application but actually represent vastly different risk profiles (e.g., active triathletes vs. sedentary individuals with significant latent health risks). This specialized data integration will provide insurers with a holistic view, enabling more accurate policy pricing and claims assessments.

AUTOMATED INSURANCE DOCUMENT PROCESSING WILL BECOME SMARTER AND MORE SCALABLE

PEOs may face challenges in managing tremendous amounts of paperwork, including employee records, payroll documentation, and benefits contracts. In 2025, advancements in automated document processing will enable PEOs to manage these documents faster and with better accuracy.

They will be able to process thousands of lengthy, multi-format documents efficiently, handling everything from de-duplicating redundant data to categorizing unstructured records. For example, claims involving extensive medical histories will no longer require tedious manual reviews, as automated systems will quickly summarize and catalog pertinent details across hundreds of pages. This means that claims processing will be faster, cheaper, and more accurate, allowing PEOs to manage even higher volumes of claims while reducing error rates and improving customer satisfaction.

AI MODELS WILL ALIGN WITH NEW REGULATORY DEMANDS

Regulatory compliance is a high priority for PEOs, especially when managing client employee benefits and workers’ compensation programs across multiple states. Recently, the National Association of Insurance Commissioners (NAIC) adopted a model bulletin outlining compliance requirements for insurers’ AI systems. This bulletin clarifies expectations for development, deployment, and documentation of AI technologies to ensure adherence to state and federal laws.

In 2025, PEOs will begin to adopt transparent, AI-driven models that align with both NAIC guidelines and specific state regulations. These models will also include explainable AI components to ensure clear, auditable insights into predictive processes to meet compliance demands. For PEOs operating across state lines, these advancements will streamline regulatory adherence and enhance consumer trust by offering transparent, ethical risk assessments. This shift will establish responsible AI use as a foundational standard in the industry, reshaping the role of predictive analytics and data usage in insurance.

PEOs that adopt both traditional and generative AI technologies are positioning themselves to drive meaningful change, unlock new growth opportunities, and deliver greater value to their small and midsized business customers.