AI is revolutionizing industries, and risk and claims management is no exception. For small and medium-sized enterprises (SMEs), the potential to streamline processes, reduce costs, and detect fraud more effectively is enticing. But alongside the promise comes risk: cybersecurity vulnerabilities, compliance challenges, and dependence on third-party tools can make AI a double-edged sword.
This article examines the top search trends and key considerations for SMEs considering AI in risk and claims operations, drawing on expert insights, real-world data, and a cautionary tale to guide you in charting a responsible path forward.
What Happens When AI Goes Wrong? A Real-World Scenario
Imagine this: A regional construction firm—mid-sized, family-owned, and growing quickly—decided to implement an AI-based claims review tool to speed up workers’ compensation processing. It promised faster resolution, lower costs, and less admin work for the HR team. But within weeks, employees began reporting denied claims for legitimate injuries.
The AI had been misconfigured. It flagged specific injury reports as “low credibility” based on location and time of day, criteria that hadn’t been adequately vetted. A foreman’s broken wrist, logged after hours on a remote job site, was auto-rejected. The delay in care led to surgery, rehab, and a costly legal claim. Morale dropped, trust eroded, and the company ultimately paid more than if it had processed the claims manually.
The lesson? AI isn’t just plug-and-play. Configuration, oversight, or data input mistakes can lead to real human harm and reputational damage.
Why SMEs Are Turning to AI in Risk & Claims
Speed & Efficiency
AI streamlines tasks such as claim intake, triage, and documentation. According to McKinsey, AI can reduce claims processing time by up to 70%(McKinsey & Company, 2020).
Cost Reduction
AI can eliminate inefficiencies, prevent overpayments, and reduce manual workload. Accenture estimates that AI could save insurers up to $7 billion annually in claims operations (Accenture, 2019).
Fraud Detection
AI detects subtle patterns that might escape human review, helping prevent fraudulent claims.
Customer Experience
SMEs are increasingly utilizing AI-driven chatbots and automation tools to enhance communication and expedite service delivery.
Predictive Analytics
By analyzing trends, AI enables SMEs to forecast risks and make more informed decisions, thereby minimizing long-term liability.
What SMEs Should Watch Out For When Using AI
1. Poor Data Quality and Misinformation
AI models are only as good as the data behind them. One SME deployed an AI tool that initially denied claims incorrectly due to a misconfigured model, resulting in reputational damage and customer loss.
2. Cybersecurity Threats
AI systems interact with APIs and cloud platforms, introducing new vulnerabilities. IBM’s 2023 report revealed:
- Companies with <500 employees: $3.31M average breach cost
- Companies with 500–2,500 employees: $4.25M average breach cost (IBM Security Cost of a Data Breach Report, 2023)
3. Compliance and Transparency
Many AI systems operate as “black boxes,” making decisions difficult to explain or audit, especially problematic in regulated industries.
4. Vendor Lock-In
SMEs that rely on third-party AI solutions may lose visibility into how decisions are made and how their data is used.
AI in SMEs – Benefits vs. Risks
| Categories | Benefits | Risks |
| Speed and Efficiency | 70% faster claims processing | Inaccurate outputs without internal expertise |
| Cost Savings | Potential multi-million dollar savings | High setup costs, hidden vendor fees |
| Fraud Detection | Better pattern recognition | False positives with poor data input |
| Cybersecurity | Enhanced anomaly detection | Greater exposure to cyberattacks |
| Compliance | Reduced human error through standardization | Lack of decision explainability |
| Vendor Strategy | Fast access to AI capabilities | Reduced control over proprietary tools |
Bottom Line: Today’s Risks May Outweigh Rewards
While AI’s potential is significant, many SMEs lack the infrastructure, training, or oversight to implement it safely. Without proper safeguards, the cost of cyberattacks, non-compliance, or algorithmic mistakes could far outweigh any savings.
AI for SMEs is evolving rapidly. We anticipate:
- More affordable, secure AI solutions tailored to small businesses
- Increased adoption of explainable AI (XAI) to meet regulatory needs
- Industry-specific frameworks to reduce implementation risks
The technology is getting better, but your readiness matters more.
Best Practices for SMEs Exploring AI
- Start Small: Test AI in low-risk areas like chatbots or document processing.
- Secure Everything: Use MFA, endpoint protection, and frequent security audits.
- Maintain Human Oversight: Keep humans in the loop for all key decisions.
- Ask Questions: Choose vendors who provide transparent AI logic and auditability.
Recordables Monitors AI with SMEs in Mind
At Recordables, we continuously evaluate emerging technologies, including AI, analytics, and dashboards, to ensure alignment with the unique needs of SMEs. Our solutions—like TrackComp® and TrackAbility®—are designed to deliver value while minimizing risk.
We don’t jump on tech trends for the sake of innovation—we do it with purpose, weighing risk, compliance, and long-term sustainability.
Final Thought
AI isn’t a “no”—it’s a “not yet” or “yes, with the right protections.”
AI can be powerful for SMEs—but only if introduced with careful planning, robust security, and thoughtful execution.
Want to learn more about AI in risk and claims management? Contact us or schedule a demo to see how Recordables can help you move forward—safely.
Paul Kofman, President of Recordables, has been providing software solutions in Risk Management, Claims Management, Disability Management, Safety, and Occupational for more than 30 years.