AI has made remarkable strides in its development, although it is still a long way from replicating human intelligence. In today’s world, we encounter artificial intelligence in various aspects of our lives, such as using algorithms to discern customer preferences in e-commerce shopping and managing chat boxes, among other applications. The insurance industry has also embraced AI, leveraging its capabilities to refine the underwriting process and provide customers with more precise policy pricing.

The advancement of AI has raised some interest in how it’s going to make a mark on the insurance industry, but the truth is that insurance has already transformed due to AI’s influence. AI has become commonplace in insurance as an inclusion in the underwriting process and in how risk is assessed. AI may also transform the way we drive with the emergence of autonomous vehicles, which in turn will alter how we determine fault for insurance collisions. Let’s get into it.

AI in Auto Insurance: Revolutionizing Underwriting

First, let’s look at how auto insurance is playing a significant role in transforming the process of underwriting. Underwriting, the act of assessing a prospective policyholder or business’ risk, was once a process done manually. Now, with the incorporation of AI, underwriting can be automated, expedited, and even enhanced in its accuracy.

The Traditional Underwriting Process

Auto insurance underwriting is the critical process by which insurance companies assess risks and determine policy premiums for individual drivers. Traditionally, this process relied heavily on manual assessments, historical data, and actuarial models. Human underwriters would painstakingly analyze vast amounts of information to evaluate a driver’s risk profile, resulting in a time-consuming and often less accurate process.

Advantages of AI-Powered Underwriting

Incorporating AI into underwriting processes boasts a wide array of benefits, including:

• Improved Accuracy: AI’s ability to analyze extensive data sets ensures a more accurate assessment of a driver’s risk profile. Factors such as driving behavior, past claims history, vehicle type, and environmental conditions are considered in a comprehensive manner, leading to more precise premium calculations.
• Faster Decision-Making: With AI, the underwriting process becomes significantly faster. Decisions that once took days or weeks can now be made in a matter of minutes, expediting policy issuance, and enhancing customer satisfaction.
• Customization and Personalization: AI enables insurers to offer more personalized policies tailored to individual drivers’ specific needs and behaviors. Usage-based insurance (UBI) models, which rely on telematics data collected through devices or smartphone apps, allow insurers to reward safe driving habits with discounted premiums.
• Risk Mitigation: AI-driven risk assessment can identify high-risk drivers more accurately, leading to improved risk mitigation strategies. By targeting risky behaviors and trends, insurance companies can incentivize safer driving practices and ultimately reduce the frequency and severity of accidents.
• Enhanced Underwriter Support: Rather than simply replacing human underwriters, AI assists them in making more informed decisions. The technology augments human expertise, providing valuable insights and recommendations based on data analysis.

One of the biggest fears of AI’s adoption is that it will “replace” human workers. This isn’t true. Instead, AI aims to support human workers and handle some of the simpler tasks to instead pass off more complex matters to human employees.

AI-Powered Risk Assessment in Auto Insurance

Risk assessment is the process of assessing an entity or individual’s risk. Not unlike underwriting, risk assessment is the analysis of someone’s risk profile. In auto insurance, that risk is how likely the driver is to get into an accident/have their vehicle damaged.

Risk assessment is not only key to pricing insurance, but it’s also the pinnacle when it comes to ensuring sufficient coverage. Without accurate risk assessment, policyholders will receive cookie-cutter insurance policies that may or may not be enough to cover them if a loss occurs.

With AI, risk assessment is easier, more detailed, and based on thousands, if not millions, of existing user databases and statistics that AI can shift through in mere seconds to extract valuable information and gauge a driver’s risk based on the extricated material.

Autonomous Vehicles and the Future of AI Technology in the Insurance Industry: Concluding Thoughts

While this isn’t specifically targeted toward insurance, autonomous vehicles are also something to be considered when the topic of AI is brought up. Autonomous vehicles are essentially driverless vehicles and have been in testing for the last several decades. There aren’t many available to the public, but it’s estimated that they’ll begin hitting the streets in the next few decades. With autonomous vehicles comes the question of determining fault for insurance companies: can a single driver be considered at fault in a collision when there’s no actual “driver?” Would the litigation then fall on the manufacturer instead? Would autonomous vehicles severely reduce the number of accidents, and thereby lower total property loss costs – and consequently premiums as well?

There are a lot of questions that have yet to be answered, especially since we aren’t seeing common use of autonomous vehicles yet. It’s an interesting prospect, nonetheless.

The integration of AI into auto insurance underwriting represents a paradigm shift in the industry. For both the sellers of insurance and the buyers, AI has the potential to reduce insurance costs due to enhanced underwriting capabilities, reduce collisions with autonomous vehicles, and enhance the way risk assessment is done, for better insurance coverage.

For more questions about auto insurance and AI, or just questions about your own auto insurance policy, give us a call at AHI Group today.