How AI is changing the global communications industry – and the risks for insurers are increasing

The rapid rise of artificial intelligence (AI) is reshaping the landscape of the communications, media, and technology industries. The introduction of ChatGPT and other major language models has accelerated the use of AI systems.

However, the popularity of AI has led to huge energy needs, especially in AI-oriented data centers, which require much more energy than traditional ones. At the same time, telecom companies are facing challenges in expanding networks to support AI, which requires large investments in fiber optics and infrastructure.

“The power consumption increase required by an AI-focused data center is huge – like a small city,” said George Haitsch (pictured right), industry leader for technology, media and communications at WTW.

“It's much bigger than the typical data centers that have existed in the past. Major AI providers such as Microsoft, Apple and Google need to pivot quickly to have greater capacity to support the use of the tools they have been releasing.”

Energy and telecommunications infrastructure are demanding increases

The issue has sparked renewed interest in nuclear power as a viable energy source, Haitsch said, with discussions now focusing on smaller mobile nuclear reactors to meet the larger energy needs of these facilities.

Experts have noted concerns that phone companies may struggle to keep up with the growing demand for AI and machine learning technologies.

Firms are working solutions such as network cutting and edge computing to close this gap, but the investment levels of companies vary, according to Jose Mercado (pictured left), the leader of the telecommunications division in North America and Latin America at WTW.

“Telephone companies are working hard to address these issues, focusing on expanding their networks to support advanced technology,” Mercado told Insurance Business. “This includes developing transportation networks, developing fiber optic infrastructure, and integrating high-tech systems to meet growing needs.”

“There are solutions out there, but their effectiveness depends a lot on the business model of each carrier,” Mercardo noted.

For example, he said, network slicing agreements allow carriers to segment their networks into different services and markets. Additionally, Edge Computing and cloud-based services help address energy gaps.

Many carriers are also forming partnerships with major cloud providers to enhance their capabilities. Edge computing is critical to supporting the Internet of Things (IoT) as it provides reliable resources.

Risks and exposures as telecommunications firms evolve to meet the demands of AI implementation

This rapid expansion to meet the growing demand caused by AI involves huge costs and increases the various liabilities of the telephone companies. Mercado emphasized the importance of proper network management and investment to close gaps, which insurance can play a part in.

“Liabilities are growing rapidly for telecommunications companies, and cyber risk is a major concern,” Mercado said. “As it enters remote or dangerous areas, insurance can help manage these risks. Business disruption is also a concern, as it can have a significant impact on profits and revenue, making it particularly important for capital-intensive telecommunications operations.”

Despite the challenges, there is strong momentum and active investment in the sector.

“The industry is clearly excited about the opportunities presented by AI,” Haitsch said. “It has been aggressively expanding its capabilities, from 3G and 4G to 5G and now looking ahead to 6G.”

In the US, the Broadband Equity and Deployment (BEAD) program launched a $42 billion investment to expand high-speed Internet to underserved areas. This program, which WTW actively supports through insurance and collateral solutions, emphasizes the telecommunications industry and government's joint commitment to improving telecommunications infrastructure and bridging the digital divide.

Haitsch highlighted the “growth opportunities” ahead, as well as the role of insurance in facilitating telecom investment.

“Insurance is a hedge, a tool for financing risk, which can help smooth margins and ensure (telecommunications firms) can proceed with confidence in terms of the investment and construction that will be required,” Haitsch said. “We are excited to be a partner in the communications industry, and we see great collaboration and excitement about tackling the challenges.”

What are your thoughts on the increased telecommunications infrastructure and energy needs due to AI? Please sound off in the comments.