Insurance and AI: When employees use US tools on Canadian data
Canadian insurers face regulatory risks when staff use ChatGPT on client data. Know your PIPEDA, Law 25, and OSFI obligations before it's too late.
Your claims adjuster just pasted a client's medical records into ChatGPT to "quickly summarize the key points." That data now sits on US servers, potentially accessible under the CLOUD Act, and you've likely violated PIPEDA Principle 4.1.3 on cross-border transfers. For Quebec operations, Law 25 Section 17 makes this a potential C$25 million problem. Canadian insurers can't stop employees from using AI — but they can control where that data goes.
The compliance landscape for Canadian insurers
Canadian insurance companies operate under multiple overlapping privacy regimes. PIPEDA applies to federally regulated insurers and inter-provincial operations under the Privacy Act. Provincial privacy laws like Law 25 (An Act to modernize legislative provisions as regards the protection of personal information) in Quebec add additional requirements. OSFI Guideline B-13 governs outsourcing and technology risk management for federally regulated institutions.
These aren't abstract requirements. The Privacy Commissioner of Canada issued 847 privacy complaints against insurance companies in 2023 alone. Law 25 enforcement under Section 163 began in September 2024, with administrative monetary penalties reaching 4% of global revenue or C$25 million, whichever is greater.
"PIPEDA Principle 4.1.3 requires organizations ensure a comparable level of protection while information is being processed by a third party. US AI platforms cannot provide this guarantee under the CLOUD Act, making cross-border transfers presumptively non-compliant for Canadian insurers."
The challenge isn't theoretical. Your employees are already using AI tools. A 2024 survey by the Canadian Insurance Accountants Association found 73% of insurance professionals had used generative AI for work tasks. Only 12% reported formal company policies governing that use.
Where US AI tools create regulatory exposure
ChatGPT, Claude, and other mainstream AI tools process data on US infrastructure. This creates immediate compliance issues under Canadian privacy law.
PIPEDA Principle 4.1.3 requires "comparable" privacy protection for cross-border transfers. The Privacy Commissioner has consistently held in findings like PIPEDA Case Summary #2019-002 that US privacy law doesn't meet this standard. The CLOUD Act (Clarifying Lawful Overseas Use of Data Act) allows US authorities to access data on US servers regardless of where the user is located.
For claims processing, this exposure is acute. Medical records, financial information, and personal details all qualify as sensitive personal information under PIPEDA Principle 4.3. Law 25 Section 22 requires explicit consent for processing sensitive data outside Quebec — consent most insurers haven't obtained through their standard privacy policies.
"OSFI Guideline B-13 Section 4.1 requires federally regulated insurers to maintain 'appropriate oversight and risk management' of all outsourced functions, including AI tools used by staff. Employee use of ChatGPT constitutes an unmanaged outsourcing arrangement under this definition."
OSFI Guideline B-13 adds another layer. Any AI tool that processes customer data constitutes an "outsourcing arrangement" under Section 2.1 requiring due diligence, contracts, and ongoing monitoring per Section 4. Most employees using ChatGPT haven't established any of these controls.
The penalties are material. PIPEDA Section 91 allows fines up to C$100,000 per violation. Law 25 Section 163 penalties scale to C$25 million or 4% of global revenue. OSFI can impose administrative monetary penalties under the Bank Act up to C$1 million for Guideline B-13 violations.
Real regulatory enforcement in Canadian insurance
Enforcement isn't hypothetical. In 2023, the Privacy Commissioner found Manulife violated PIPEDA Principle 4.7 by inadequately protecting customer data during a vendor transition. The public report under Section 20 damaged the company's reputation and triggered regulatory scrutiny.
Quebec's Commission d'accès à l'information has been more aggressive since Law 25 took effect. They've investigated insurance companies for cross-border data transfers under Section 17, inadequate consent mechanisms under Section 12, and poor vendor oversight. The first Law 25 penalties under Section 163 were issued in late 2024.
OSFI has consistently cited technology risk management failures in its supervisory findings. The 2024 Annual Report noted "inadequate oversight of third-party technology arrangements" as a common deficiency among federally regulated insurers, specifically referencing Guideline B-13 compliance gaps.
The pattern is clear: regulators are paying attention to how insurers handle data, especially when it leaves Canadian borders.
The business case for Canadian AI infrastructure
Beyond compliance, there are operational reasons to prefer Canadian AI platforms. Claims processing requires understanding Canadian legal frameworks, provincial insurance regulations, and Quebec civil law concepts that US-trained models handle poorly.
Canadian-hosted platforms offer better performance for Canadian use cases. They're trained on Canadian legal documents, understand provincial variations in insurance law, and can handle bilingual requirements under the Official Languages Act Section 25.
"Canadian insurers need AI tools that understand the distinction between common law tort principles in nine provinces versus Quebec's Civil Code Article 1457 on civil liability, provincial Insurance Act variations on statutory accident benefits, and mandatory bilingual documentation requirements under federal language laws."
Platforms like Augure are designed specifically for this environment. Built on Canadian infrastructure with Canadian corporate ownership, they avoid CLOUD Act exposure entirely under US extraterritorial data access laws. The models understand Canadian regulatory frameworks because they're trained on Canadian legal and regulatory content.
For insurance companies, this means AI assistance that actually understands your operating environment. Claims analysis that recognizes provincial insurance act differences. Policy reviews that account for Canadian consumer protection laws. Risk assessments that reflect Canadian actuarial standards.
Practical implementation without regulatory risk
The solution isn't banning AI — it's providing compliant alternatives. Canadian-hosted AI platforms let you give employees the tools they want while maintaining regulatory compliance.
Start with clear policies aligned to Law 25 Section 67 governance requirements. Define what data can be processed through AI tools and which platforms are approved. Train staff on the distinction between public AI tools and enterprise-grade Canadian platforms.
Implement technical controls. Block access to non-compliant AI tools at the network level. Provide easy access to approved Canadian platforms like Augure. Monitor usage to ensure compliance with internal policies and OSFI Guideline B-13 oversight requirements.
Document everything per Law 25 Section 67. Maintain records of AI tool approvals, staff training, and usage monitoring. OSFI expects this level of oversight under Guideline B-13 Section 4 for any technology that processes customer data.
The key is making compliance easier than violation. If your approved AI tool is faster and more useful than ChatGPT, employees will naturally migrate to it.
Building a sustainable AI strategy
Long-term success requires embedding AI governance into your existing risk management framework. This isn't a technology project — it's a compliance and operational risk initiative under OSFI's Enterprise-Wide Risk Management guidelines.
Designate clear ownership. Your Chief Privacy Officer should oversee AI privacy compliance under PIPEDA Principle 4.1.4. Your CRO should manage operational risk aspects under OSFI Guideline B-13. Technology teams should implement technical controls.
Regular auditing is essential under Law 25 Section 67. Review AI tool usage quarterly. Assess new tools against your compliance framework. Update policies as regulations evolve.
Consider the total cost of compliance. The direct cost of Canadian AI platforms may seem higher than free tools like ChatGPT. But factor in regulatory penalties under PIPEDA Section 91 and Law 25 Section 163, investigation costs, and reputational damage. Compliant tools are typically cheaper when you account for total risk.
Canadian insurers have a clear choice: reactive compliance after a breach or violation, or proactive adoption of Canadian AI infrastructure. The regulatory landscape makes this decision straightforward.
Ready to give your team AI tools that actually comply with Canadian privacy law? Explore enterprise-grade Canadian AI at augureai.ca — built for regulated organizations that can't afford regulatory surprises.
About Augure
Augure is a sovereign AI platform for regulated Canadian organizations. Chat, knowledge base, and compliance tools — all running on Canadian infrastructure.
