Artificial intelligence allows insurers to leverage big data to assess risk, streamline applications, and create fair pricing models for their customers.

Key takeaways:

  • AI is becoming increasingly vital to the insurance industry
  • Insurers use AI in the underwriting process
  • The result is more precise risk profiles and accurate premiums
  • This technology will become even more common in the future

Unless you’ve been living under a rock for the past few years, you likely know that AI technology is becoming mainstream. As an internet user, you can access basic forms of artificial intelligence whenever you wish, using it to simplify information, create artwork, and answer questions you have about nearly any topic.

AI is also becoming an increasingly helpful business tool because it can instantaneously collect and analyze massive amounts of information. For instance, companies in the insurance industry are using this technology in the underwriting process because it can identify risks and develop personalized policies with incredible accuracy.

Understanding how artificial intelligence influences the underwriting process is vital for insurance professionals. Here’s an overview of AI in the insurance industry and its benefits for firms of all sizes.

Create risk profiles

One of the primary ways insurance companies use AI is to develop a deeper understanding of their customers. 

Every potential customer has massive amounts of data available, everything from driving records and past occupations to public records and social media posts. But manually going through it all would take a significant amount of time for a human employee. AI can sift through this data almost instantaneously, and the result is an accurate risk profile that’s ready in a fraction of the time, streamlining the underwriting process.

These risk profiles can go beyond readily available information, too, as AI can identify high-risk customer segments by looking at key risk indicators that a human underwriter might overlook. This step provides a proactive analysis that identifies risks a customer might present in the future, ensuring insurance companies can adjust their pricing accordingly. 

Set premiums

After AI develops a risk profile, insurance companies can use it to help set premiums. The goal is to find a sweet spot where your customers are happy with the price, but you aren’t taking on too much risk. Profitable and fair pricing can be challenging for a human underwriter to achieve because there are so many data points to analyze. However, artificial intelligence can address inefficiencies to create a pricing strategy that works for everyone.

Setting premiums that match the risks is vital, and it’s not always easy to do. A study by McKinsey that compared five different insurance companies showed that a small business could be offered coverage amounts that differed by 233% for the same price, so there’s an incredible amount of inconsistency in the industry. Using AI to create accurate pricing helps ensure that you aren’t overvaluing (or undervaluing) select risk factors when providing a quote.

AI insurance underwriting is efficient because it captures the customer’s entire risk profile. By taking every relevant factor into account, AI allows human underwriters to make adjustments, limit risk, and offer fair, competitive quotes. 

Streamline the application process

Improving underwriting efficiency is another benefit of AI. Rather than waiting for a human underwriter to sift through mounds of data to provide an accurate quote, AI can handle the job in seconds. Customers appreciate being able to quickly compare quotes and policies and find the option that best suits them. 

Streamlining the application process is also a benefit for insurers because they’re putting less time into generating quotes, so their skilled underwriters can focus on specific tasks for high-value accounts. Staying ahead of the competition by getting same-day quotes and approvals into customers’ hands can also lead to increased volume. In fact, we’re reaching the point where insurance companies that don’t use AI could start to fall behind and see their customer base decrease due to the speed and efficiency of their competitors. 

Potential problems with AI

Despite all the positives, there are some AI-related issues that insurance companies need to be aware of moving forward. These problems can potentially limit artificial intelligence’s effectiveness and push customers toward firms that take the time to address them.

First, there’s the potential for biases in AI decision-making. The underwriting process is only as good as the model you use, and if your model has biases against certain customers or segments, the results will be skewed. Most states have laws that prohibit discrimination, so you could incur legal penalties if you unwittingly introduce biases that lead to prejudice.

Another concern is the use of outdated data. Things like credit scores, telematic information, and weather data are continually changing, and your AI setup has to stay current to provide accurate price modeling.

The good news is that these potential problems are fixable as long as you stay on top of them. The result is a streamlined underwriting process that keeps your customers happy while maximizing your profitability. 

Implementing AI in the insurance industry

Using AI to your advantage in the insurance industry is becoming a must if you want to keep up with the competition. Insurers need to use artificial intelligence to collect and analyze data, create risk profiles, and generate quotes because modern customers demand speed and efficiency when selecting a provider. They also want accurate policy offers and competitive pricing, which AI can assist in developing. 

NICRIS Insurance offers commercial, life, and personal insurance to customers in New York and Florida. We put effort into building relationships with our clients, providing the insurance products they value, and continually reviewing their needs. Drop us a line to learn more.