AI in Insurance: Underwriting Evolution, Ethical Challenges, and Future Outlook

Episode #30 December 19, 2024

In this episode, we delve into the intersection of AI and insurance, beginning with an introduction to the Beyond Tech Frontiers series. We explore insights from InsurTech, highlighting AI's transformative role in underwriting. The discussion covers AI's evolution and benefits within the insurance sector, focusing on medical underwriting and fraud detection. We examine the impact on underwriters, balancing human expertise with AI, and managing emerging risks. Ethical challenges, governance, compliance, and data security are addressed. The episode concludes with a recap of AI's influence and future outlook, emphasizing innovation and ethics in the industry.

Chapters:

0:00

Introduction to Beyond Tech Frontiers

0:37

Insights from InsurTech Insights and AI's Role in Underwriting

2:30

Evolution and Benefits of AI in Insurance

3:35

AI's Impact on Medical Underwriting and Fraud Detection

5:04

The Evolving Role of Underwriters in an AI Environment

6:24

Balancing Human Expertise and AI in Underwriting

7:47

AI's Adaptability and Managing Emerging Risks

8:20

Addressing Cybersecurity and Ethical Challenges in AI

9:36

AI Governance, Compliance, and Data Security

10:43

Recap: AI's Influence on Underwriters and the Industry

12:31

The Future Outlook for Underwriting

13:04

Closing Remarks: Innovation, Ethics, and the Role of Webinars

Key Points:

Artificial intelligence and advanced analytics are revolutionizing the insurance industry by significantly reducing processing times and improving the accuracy of underwriting decisions.
The rapid adoption of AI in insurance is driving a profound shift in the roles of underwriters, who are now focusing more on strategic and analytical functions rather than routine tasks.
Ensuring fairness, transparency, and robust data protection measures in AI-driven underwriting processes is crucial for maintaining consumer trust and meeting regulatory requirements.

Transcript:

Welcome to Beyond Tech Frontiers, the podcast where we delve deep into the mechanics of disruptive innovation, market trends, the future of work, and ethical technology. I'm your host, Sabine VanderLinden. As an executive and entrepreneur, I've spent over 25 years driving innovation in the insurance industry, venture capital, and academia. Today, I'll guide you through the challenges and opportunities that corporate giants and fledgling ventures face in our rapidly evolving world.

Sarah, a seasoned underwriter with 15 years of experience, is at a crossroads in the bustling heart of a modern insurance company. As she reviews a complex risk assessment on her computer screen, she can’t help but marvel at how different her job is today compared to when she started. Integrating artificial intelligence and advanced analytics has transformed her role, allowing her to make unprecedentedly fast and accurate decisions. Yet, as she ponders the future, she wonders: How will technology continue to reshape the underwriting landscape, and what does it mean for professionals like her?

Sarah’s story echoes the sentiments of many insurance industry leaders, a sentiment thoroughly explored in the recent InsurTech Insights webinar series. The panel discussion, featuring industry leaders Paul Spelman from Hiscox Insurance USA, Dr. Dave Rengachary from RGA Reinsurance Company, and Nathan Schwartz from Howden Re, delved deep into the evolving world of underwriting in a tech-driven era.

Our insurance industry is witnessing a seismic shift, with artificial intelligence and advanced analytics at the forefront of this transformation. Adopting these technologies is not just a trend but necessary in today’s tech-driven competitive landscape. Paul Spelman, Senior Vice President at Hiscox Insurance USA, emphasized this point, stating: "The integration of artificial intelligence in small commercial underwriting has revolutionized our ability to assess risks quickly and accurately. We’re seeing a dramatic reduction in processing times, from weeks to minutes, while improving the quality of our underwriting decisions."

Research shows that over 75 percent of insurance industry decision-makers have already implemented artificial intelligence into their operations, including underwriting. This rapid adoption is reflected in the projected growth of the global artificial intelligence in the insurance market, which is expected to surge from 8.13 billion dollars in 2024 to a staggering 141.44 billion dollars by 2034, with a compound annual growth rate of 33.06 percent.

The impact of this technological revolution is profound. Efficiency and cost reduction are key benefits, with artificial intelligence-driven underwriting processes showing the potential to reduce costs by up to 50 percent and decrease processing time from weeks to minutes. This efficiency boost is not just a marginal improvement; it’s an enabler that allows companies to stay competitive in a fast-paced market.

Artificial intelligence models process and analyze data 100 times faster than traditional methods, enabling real-time risk assessment. This speed, combined with the ability to analyze a broader range of data points, results in more accurate risk assessments and personalized insurance policies. Dr. Dave Rengachary, Senior Vice President and Head of Underwriting for United States Individual Life at RGA Reinsurance Company, highlighted the impact on medical underwriting: "Artificial intelligence has transformed our ability to analyze complex medical data. We can now consider a much broader range of factors in our risk assessments, leading to more personalized and accurate underwriting decisions."

Furthermore, artificial intelligence systems have demonstrated an impressive 90 percent accuracy in detecting fraud, significantly reducing fraudulent claims and saving insurers money. This protects the bottom line and ensures that honest policyholders aren’t bearing the cost of fraudulent activities. Nathan Schwartz, Head of Analytics at Howden Re, added, "The application of artificial intelligence in fraud detection has been relevant. We’re not only saving costs but also ensuring that honest policyholders aren’t bearing the burden of fraudulent activities."

As Sarah’s story illustrates, the role of underwriters is evolving rapidly in response to these technological advancements. The panel discussion highlighted several key points affecting her and her team.

Artificial intelligence has shifted underwriters’ roles from routine tasks to strategic and analytical functions. This transition requires a new set of skills and a willingness to adapt to changing job requirements. Paul Spelman noted, "At Hiscox, our underwriters transition from data entry and basic risk assessment to becoming strategic advisors. They’re now focusing on complex cases that require nuanced judgment and industry expertise."

With only 8 percent of organizations offering high-level training on generative artificial intelligence governance and monitoring, there’s a clear need for more comprehensive education programs. Underwriters must embrace continuous learning to stay relevant in this tech-driven environment. Dr. Rengachary emphasized, "Continuous learning is no longer optional in our field. We’re investing heavily in upskilling our underwriters to ensure they can effectively leverage artificial intelligence tools while maintaining their critical thinking skills."

While artificial intelligence is transforming the industry, the human element remains crucial. Underwriters must learn to leverage technology while applying their expertise to complex cases that require nuanced judgment. Nathan Schwartz observed, "In reinsurance analytics, we find that the most effective approach is a hybrid model. Artificial intelligence provides us with powerful insights, but the human expertise contextualizes these insights and makes the final decisions."

The panel also discussed how technology is helping underwriters tackle emerging risks. Artificial intelligence enhances data segmentation for granular analysis of risk factors, providing superior forecasting accuracy in complex risk scenarios. This is particularly crucial in areas like climate risk assessment, where machine learning models analyze vast amounts of climate data to provide more accurate predictions of natural disasters and their potential impacts. Nathan Schwartz elaborated, "In catastrophe modeling, we’re using artificial intelligence to analyze vast amounts of climate data, allowing us to predict natural disasters and their potential impacts with unprecedented accuracy."

Artificial intelligence and machine learning models continuously learn and adapt to new data, enabling insurers to stay ahead of evolving risks in real time. This adaptability is essential in a world where new risks can emerge rapidly. Paul Spelman shared, "In the small commercial market, we use artificial intelligence to identify emerging risks associated with new technologies and business models, such as cyber. This allows us to develop innovative products that address these evolving needs."

With 55 percent of data experts concerned about the potential for sensitive information to be inadvertently exposed by large language models, addressing cybersecurity risks has become a top priority. Dr. Rengachary noted, "In life underwriting, we’re not only using artificial intelligence to assess health risks but also to evaluate the cybersecurity posture of our clients. It’s becoming an integral part of our risk assessment process."

The adoption of artificial intelligence and advanced analytics in underwriting isn’t without its challenges, particularly when it comes to ethics and data security. A staggering 80 percent of survey respondents are concerned about data security in the context of generative artificial intelligence, while 79 percent are worried about data privacy related to artificial intelligence implementation. These concerns highlight the need for robust data protection measures. Paul Spelman addressed this issue, stating, "At Hiscox, we’ve implemented stringent data protection measures and are transparent about using artificial intelligence in our underwriting processes. Building trust with our clients is paramount."

Governance and compliance are also critical issues. A staggering 93 percent of United States businesses lack a comprehensive governance framework for generative artificial intelligence, and only 14 percent of organizations are fully prepared to comply with current and upcoming generative artificial intelligence regulations. This regulatory gap poses significant risks and challenges for the industry. Dr. Rengachary emphasized, "We’re working closely with regulators to develop ethical frameworks for artificial intelligence use in life underwriting. We must address these governance challenges proactively."

Ensuring fairness and transparency in artificial intelligence-driven underwriting processes is crucial for maintaining consumer trust and ethical standards. Nathan Schwartz concluded, "In reinsurance, we’re developing robust systems to audit our artificial intelligence models for bias. Ensuring fairness and transparency in our underwriting processes is not just an ethical imperative but a business necessity."

As the insurance industry continues to evolve, here are some key takeaways for underwriters looking to thrive in this tech-driven landscape:

Embrace continuous learning. Stay updated with the latest technologies and methodologies in underwriting. Engage in ongoing education to understand data analysis, machine learning, and artificial intelligence.

Develop technical skills. Gain proficiency in interpreting complex algorithms and data analysis. This technical knowledge will enable you to use artificial intelligence and machine learning tools effectively.

Focus on strategic thinking. As artificial intelligence takes over routine tasks, focus on developing your strategic thinking and complex problem-solving skills. Human expertise remains invaluable in these areas.

Collaborate across teams. Encourage a culture of collaboration and peer review. Sharing insights and experiences with colleagues can help catch issues that might be overlooked individually.

Stay informed on industry trends and the latest developments in InsurTech. Understanding how digital transformation reshapes the industry will give you a competitive edge.

Understand ethical implications. Be aware of the ethical considerations in artificial intelligence-driven underwriting. Strive to maintain fairness and transparency in your assessments.

Adapt to new workflows. Be open to adopting new systems that automate mundane tasks. This will free up your time for high-value assessments.

As we look to the future, it’s clear that the underwriting landscape will continue to evolve rapidly. For professionals like Sarah and the entire insurance industry, the key to success lies in embracing these technological advancements while maintaining the human touch that has always been at the heart of underwriting. By doing so, we can create a more efficient, accurate, and customer-centric insurance industry ready to meet tomorrow’s challenges.

The insights shared by Paul Spelman, Dr. Dave Rengachary, and Nathan Schwartz during this InsurTech Insights webinar underscore the transformative power of technology in shaping the future of underwriting. As the industry continues to navigate this tech-driven landscape, it's clear that the most successful organizations will be those that can effectively balance innovation with ethical considerations, continuous learning, and a deep understanding of evolving risks.

Thank you for joining me on this episode of Beyond Tech Frontiers. I hope you found our exploration of the future of underwriting insightful and thought-provoking. Remember to subscribe and tune in for more deep dives into the world of disruptive innovation and ethical technology. Until next time, I'm Sabine VanderLinden, and this has been Beyond Tech Frontiers.