How Will AI Affect My Insurance Rates?

Artificial intelligence (AI) has changed everything, from the way people create social media content to how much you pay for your insurance bills. As of 2022, 40 major insurance companies in the U.S., had incorporated chatbots into their business model.^[1] The integration of AI into the way insurance companies operate has transformed the way insurance companies rate risk, price policies and interact with customers.

In many cases AI is a good thing, because consumers save some money and have answers to their most pressing questions in a tap.

Let’s look at the various ways AI influences insurance rates, the way your insurer services you and other changes you can expect.

3 Common Types of AI Used by Insurance Companies

Understanding how AI affects your insurance rates will help you better understand how your premiums are shaped and how you can lower your rates, so we’ve broken it down for you below.

Here’s also some information on the level of service you should expect to receive from an insurance company that relies on chatbots and other claims-related technology.

1. Risk Assessment and Underwriting Using AI

• Faster Application, Fewer Questions
  Because AI can scrape a multitude of sources to derive data sets, you may be asked fewer questions when you apply for an insurance policy, but don’t be fooled into thinking that the insurer doesn't know much about you! They will probably have more accurate information about your home and car than you do.
  
  If you are flagged as being a high-risk applicant, you may be asked additional questions. If you’re buying a life insurance or health insurance policy and worry that AI will pick up on and misinterpret your health issues, have your doctor’s explanation of the condition and compliance of treatment ready for submission.
• Enhanced and Far Reaching Data Analysis
  Expect more accuracy in pricing. AI algorithms can sift through vast amounts of data much more accurately than human underwriters, who would take days to do what AI can do in one day–if they could do the task at all.
  
  AI can scrape data from social media, drone images, websites, telematics devices, wearable devices, smart home sensors and even your FitBit, to provide a closer look at your overall risk profile.
• Personalized Pricing
  If you speed and brake hard, you’ll pay more for car insurance. If you’re running a home business with a visible website but not telling your home insurer, beware. If you bungee jump and post videos on Instagram, you may pay more for life insurance.
  
  Otherwise, most AI tools will help you get a more customized rate, whether you’re buying a car, home, commercial, health or life insurance policy. If you’re a good driver, that’s good news. If you’re a risk taker of any sort, not so much.

2. Claims Processing Using AI

• Automated Claims Handling: AI can assist users in claim filing and can also determine the payout amount, based on your limits and deductible. The automation of claims reduces processing time and costs, which can translate to savings and a shorter wait time to use the payout for repairs.
• Fraud Detection: AI algorithms can identify and flag fraudulent claims, helping insurance companies reduce losses that they would otherwise pass down to policyholders. As more and more insurers begin to utilize AI for fraud-detection, the result will be lower premiums for everyone.

3. Customer Experience With AI

• Chatbots and Virtual Assistants: Without ever having to speak with a live agent, an AI-powered chatbot can help answer questions, provide instant quotes and make policy changes. This means faster service at any time of the day and lower administrative costs, which will reduce prices across the board for all policyholders.
• Customized Recommendations: AI can analyze your profile and offer coverage recommendations, ensuring that you have adequate protection at competitive rates. It’ll be no different than asking your agent for recommendations, only faster.
• No Hold Time. No more listening to elevator music while holding for long periods of time. A chatbot can offer customer service quickly 24/7. You can even speak with an insurer’s chatbot using Facebook or LinkedIn.

How AI Will Affect Insurance Rates Now and in the Future

1. Fair Premiums With Accuracy
   • AI allows more data to be more accurately assessed, leading to premiums that truly reflect your risk profile. This is great news for people who maintain their homes, drive safely and take good care of their health. Otherwise, they won’t benefit from lower rates. In fact, high-risk lifestyles will lead to higher premiums.
2. Precise Pricing Using AI Devices
   • Traditionally, insurance companies review rates annually, but AI enables premiums to be adjusted in real-time based on updates on driving behavior and other data. For example, telematics car insurance always monitors driving habits and adjusts rates based on how safely you drive.
3. Discounts and Incentives for Drivers Using AI
   • AI can identify discounts and incentives for low-risk lifestyles. For example, insurers might offer lower rates to drivers who use telematics devices and demonstrate safe driving behavior or to homeowners who install top-of-the-line security systems.
4. Fraud-Cost Reduction for Lower Premiums
   • By reducing fraud, AI helps insurers save money and offer lower premiums. AI can quickly and accurately detect fraud, which means less money spent on fraudulent claims.

Ethical, Transparency and Privacy Concerns With AI

1. Privacy Issues
   • Because AI gathers personal data for insurance companies, many consumers have raised privacy concerns. Policyholders are able to ask how their data is collected, used and protected by their insurers. The more transparency, the better.
2. Algorithmic Bias
   • Some people have raised concerns about biases in AI algorithms that may result in unfair pricing. Again, transparency on the part of the insurance company is most important and so are regular audits that prevent discriminatory practices.
3. Security Concerns
   • The new and growing reliance on AI and other technologies in the insurance space leave systems prone to failure or cyberattacks. Ask your agent about what measures your insurer takes to promote cybersecurity protocols.