How Will AI Affect Insurance?

In mainstream media, people are talking about artificial intelligence (AI) as if it were something new, but AI has been in development for quite some time. Artificial intelligence is simply any machine displaying cognitive functions like that of the human mind, like predictive text on your cell phone. What’s new about the technology is its rapid rate of advancement over the past few years.

In the insurance industry, AI predicts the risk of accidents, storms, health decline and even how much they will need to repair a car or home. Insurance agents, underwriters and adjusters once did all this work, but now automation, machine learning and all sorts of other AI tools are doing it more efficiently. There is little room for human error, even in pricing. Drones are also starting to be used for evaluating risk to property, property damage and even liability risk for individuals and businesses.

As of March 2024, 80% of insurance companies admit to using artificial intelligence for making business decisions or plan to do so within a year. While the insurance sector is already very regulated, in some states, the government is issuing AI-specific regulations and guidance.⁽³⁾ Much of this involves controversy over biases found in AI tools’ decision-making and worries over the security of customer data.

Everyone agrees, however, that claims handling, customer service and the underwriting process benefit from AI technology for accuracy, cost savings and timeliness. Here’s more.

Did AI Raise My Insurance Rate?

The car insurance and home insurance rate hikes over the last couple of years have nothing to do with the use of artificial insurance in the insurance market. In fact, without an increase in costs to customers, AI adoption is why there are virtual assistants, or chatbots, available to help you at any time, even 3 am.

The use of AI in insurance has created efficiency in fraud detection, accurate rating for risk and a faster pace of claims processing, all of which are beneficial to policyholders.

If you use an app that tracks how safely you drive for a discount, your insurance company uses the data transmitted to an app or telematics device to give you the most accurate quote based on historical data and behavioral risk assessments using AI technology, not on what the average driver should probably pay. That sounds more fair, right?

Claims Management and Customer Experience Using Artificial Intelligence

AI has been used in the insurance industry for some time now, and you are probably already experiencing its effects with your insurance policies. In the coming years, however, AI will affect the insurance industry and your policies on a larger scale so it's important to see how it works.

AI generated benefits include:

• Personalization. More efficiently than an insurance agent can, AI can now evaluate a profile and determine which coverages that business, individual or family needs.⁽²⁾
• Efficiency and speed. Faster purchasing and faster claim payouts.
• Fraud detection. Fraud prevention is cutting costs for consumers.
• Operational efficiency. Insurance companies are saving money with fewer errors and faster processes, and the savings are passed down to consumers.
• Accuracy. More accurate pricing means that you will be paying what you should pay, based on your unique historical data.⁽¹⁾

Perhaps the best thing to result from machine learning, deep learning and other types of AI is that people can upload videos and photographs of damages and claims are processed and paid faster.

AI’s efficiency and accuracy will only improve the insurance buying and claims filing process moving forward.

AI and Auto Insurance

Cars already have self-driving capabilities, using sensors reliant on AI technologies. As we get closer to realizing fully autonomous cars, insurance will focus more on prediction and prevention than detection and repairing a vehicle after an accident. Largely this is all due to AI technology.

Even filing a claim is often done using an app to upload photos and videos, instead of speaking with a live agent and passing emails back and forth. Due to AI, insurance agents will focus more on customer needs and problem solving rather than handling administrative tasks and decision-making about how risky that customer is.⁽¹⁾

Some examples of how AI can reduce auto insurance cost by promoting road safety include:

• Camera sensors
• Predictive maintenance
• Driver assistance
• Vehicle app connectivity
• Telematics connectivity

AI and Home Insurance

At home, devices connected to the Internet are used to monitor water levels, temperature, and other risk factors, before problems arise. This inevitably leads to cheaper homeowners insurance premiums. AI devices that reap discounts include, but are not limited to:

• Smart thermostats
• Smart lights
• Smart security and surveillance systems
• Video doorbells
• Smart locks

Drones can evaluate terrain to determine risk and assess property damage, like that from a fire or wildfire.

Lastly, 3D printing recreates any prototype in three dimensions, using specific types of material, to accurately estimate costs.⁽²⁾

AI and Commercial Insurance

It’s not just the car insurance industry that’s affected by new technologies either, but also self-driving farm equipment, which affects commercial insurance rates.

AI can create custom reports and risk mitigation plans for each company based on their unique profile and help them choose which insurance products they really need and which they don’t, much more effectively than an insurance agent who does not specialize in every type of business they insure.

Examples of how AI can reduce commercial insurance costs include, but are not limited to:

• Fleet management tools
• Autonomous features on equipment
• Predictive maintenance on equipment
• More industry-specific data to help business owners choose the right coverage
• Improved quality control for manufacturers
• Warehouse management tools
• Cybersecurity tools

AI and Life Insurance

Life insurance carriers are already able to provide instant coverage, albeit to the healthiest candidates and at high prices, but as AI continues to mature, we will see more instant life policies being written, at better rates, for all individuals.⁽¹⁾

The benefits of AI in life insurance include:

• Streamlined application process
• Customized policies based on each unique profile
• Faster claims, withdrawals and surrender processes
• Chatbots that reduce operational costs that are passed down to policyholders

AI and Health Insurance

In the health industry, manufacturers are using 3-D printing to create more affordable hip, knee and spine implants based on prototypes. 3-D printing also creates custom implants for cancer and trauma patients as well as medical and orthopedic products.⁽⁴⁾

Another way AI helps consumers and insurers is that historical data analysis helps insurers to create better and more personalized healthcare services and products based on the overall needs of customers. Billing is streamlined, and prior authorizations are processed in a more timely manner.⁽⁵⁾

Here are some more ways AI lowers health insurance costs:

• Creation of generic medical devices that will save insurance companies money and pass down savings
• AI-driven billing software that reduces inaccuracies and losses
• AI driven diagnoses of imaging, which are fast and prevent disease progression
• Health records management using AI allows doctors and specialists to communicate and exchange information seamlessly

AI Technology Benefits

The ever-evolving AI technologies, called machine learning and deep learning techniques, are advancing fast. By 2030 all underwriting will be automated, thereby saving you time when you buy a policy, and assessing your risk more accurately and passing down cost savings.⁽¹⁾

So while you’re learning how to use things like apps and telematics for driving discounts, on the back end, insurance agents, brokers, adjusters and underwriters are also utilizing AI for risk assessment, distribution and cost cutting, which also means savings that are passed down to you.

Also, the ease with which policies are priced, written and purchased makes buying insurance faster and cheaper. Contract processing and payment verification are also streamlined, further cutting costs.⁽¹⁾

Not to mention that comparing insurance rates to get the best deal has never been easier, helping to keep insurers competitive with their pricing. This is all AI and machine learning as well as deep learning.

What Is Machine Learning (ML) and How Does it Affect My Insurance?

There are three parts to ML: reinforcement learning, supervised learning and unsupervised learning.⁽¹⁾

When machines are fed accurate data (generative AI) and gain learned experience, they can become predictive–and accurately so.

Unlike other types of artificial intelligence, machine learning improves over time, as it learns from historical data.

What is Deep Learning (DL) and How Does it Affect My Insurance?

Deep learning builds upon machine learning, when the machine begins to process algorithms and make complex abstractions based on the data. DL also connects software-driven calculators, which behave like the human brain’s neural networks.⁽¹⁾

The difference between ML and DL lies is that ML algorithms rely on structured data, while DL can process vast amounts of both structured and unstructured information, using layers of artificial neural networks, the way a human would, only more accurately and efficiently.

What Is Bias in AI and How Does it Affect Insurance?

Critics of AI, especially its application in insurance, say there are biases in the training, the algorithms and therefore the data produced by AI.

Results about people of color, women, people with disabilities, the LGBTQ community, and other marginalized groups of people are said to be distorted as a result of institutional and societal biases.⁽³⁾

In addition to new laws being passed, insurers are working to resolve these biases.