AI is a powerful tool that could revolutionize the way insurance companies do business, but it also presents risks and challenges that need to be addressed.

Key takeaways:

  • Artificial intelligence is becoming common in the insurance industry
  • Providers can use AI to set rates, reject claims, and create offers
  • There are serious concerns regarding how companies should use and protect this data
  • Customers are within their rights to demand transparency when insurers use AI

Artificial intelligence is everywhere, and it’s becoming an increasingly polarizing topic. Sure, this technology provides countless benefits, but its inherent risks are also a concern for businesses and their customers. 

In the insurance industry, AI is becoming a common tool for analyzing customer data and pricing products. It’s also a powerful policing tool that can detect suspicious activity and limit fraudulent claims. 

All this utility comes at a price, however. For one thing, AI means there’s a significant amount of data running through insurance company systems, and failing to protect this data – or using it for the wrong reasons – could damage customer confidence or even lead to legal troubles. 

It’s easy to see, then, that finding ways to address the concerns surrounding AI needs to be top-of-mind for companies in the insurance industry. Here’s a look at some of the issues involved in the adoption of AI in the insurance industry. 

The challenges of AI in insurance

Data confidentiality may be the most pressing concern regarding AI in the insurance industry. Artificial intelligence can collect, store, and process information on a massive scale, making it easier for insurance companies to use customer data for marketing and fraud mitigation. 

Of course, all that data leads to privacy concerns, which are becoming a significant issue for insurance companies. The most obvious threat comes from hackers who could access this information and use it for their personal gain, either by using it for identity theft or simply by demanding ransom. But that’s not the only privacy issue surrounding AI.

Customers are also concerned about how insurance companies will use their data, especially when it comes to developing rates. For ethical insurance companies, transparency is key. They need to make sure that customers understand exactly how their data is being used – and also the steps being taken to protect it. 

This isn’t just a matter of building consumer trust. Laws like the New York Privacy Act could give consumers control over their personal information and allow them to hold companies accountable if they fail to protect it. 

Security in AI adoption

Cybersecurity is a hugely important aspect of AI integration. Whenever an AI program collects data, there’s an opportunity for hackers to infiltrate the system and steal it. Data breaches are a significant concern because insurance companies collect a great deal of their customer’s financial and personal information, which could be used to steal their identities. 

It’s therefore crucial for insurance companies to do everything they can to fortify their systems against cyber-attacks and ensure that customer information doesn’t fall into the wrong hands. As mentioned above, transparency is also key. Customers have a right to know what’s being done to protect their data from attacks. 

For instance, if a company uses an AI chatbot on their website to help process claims, consumers need to understand what’s being done to protect any information – including name, address, policy number, email address, phone number, and other identifying information – they’re being asked to enter. 

Companies are also increasingly using AI as a method of fraud detection. This technology can analyze an immense amount of data nearly instantly to help determine whether a claim is legitimate. In some situations, AI might even be able to analyze a customer’s speech patterns or non-verbal cues to help with decision-making. 

In May 2021, for example, an insurance provider called Lemonade claimed that it was using AI to analyze biometric data and non-verbal cues to make decisions on claims. However, they hadn’t informed their customers, which resulted in a huge backlash against the company. They also didn’t notify customers what steps they were taking to protect their information, heightening the problem.

Building trust with customers

As the consumer reaction to the Lemonade situation shows, insurance companies that use AI for any reason need to be completely transparent about their practices. As this technology becomes more mainstream, more insurers will start implementing it. Many customers, however, still don’t understand how this technology works and may take their business elsewhere if they’re uncomfortable with it. That’s why it’s a good idea for insurance companies to educate customers by explaining how they’re using AI and why it can actually be beneficial for consumers. 

For instance, insurance companies can reduce fraudulent claims by using AI. This reduction can save customers money because it lowers expenses. By educating and answering questions about AI honestly, providers can gain the trust of their customers moving forward – and maybe even save them a little money. 

Another step insurers can take is to use AI responsibly as a marketing tool. Customers will notice if they start receiving a large amount of highly-targeted marketing materials and wonder how the company collected all that data. While there’s nothing wrong with targeted marketing, it shouldn’t include personal information that could identify the customer or put their data at risk. 

Find an insurance agency you can trust

As AI continues to be adopted by the insurance industry, the issue of trust will become more important than ever. Consumers will increasingly be vetting providers based on how they collect, use, and protect personal information, and it’s up to insurance companies to be transparent about their practices and earn consumer trust.

At NICRIS Insurance, we’re committed to maintaining an open and honest relationship with our clients and addressing ethical concerns surrounding AI. We offer home, car, life, and commercial insurance in New York and Florida. Contact us today for more information or to get a quote.