Leveraging AI for Accurate Insurance Risk Evaluation

Abstract

The insurance industry has evolved over time from a sector designed to pool the risk of loss for individuals and businesses to a sophisticated risk management mechanism that supports investments, contributes to improvements in public health, safety, and welfare through identifying and preventing risk, and acts as a shock absorber when large losses occur. Although the fundamental role of the insurance industry has evolved over time, accurately assessing, monitoring, and pricing insurance risk remains at its core. As a basic principle of insurance is to maintain risk pools of like risk, accurate risk evaluation is necessary to ensure that all policyholders that contribute to a pool pay a fair price, but also, more importantly, to ensure that policyholders do not pay more from the pockets of successful insurers due to significant, frequent, or erosive losses that could have otherwise been avoided.

Given the trillion-dollar U.S. insurance industry and tens of trillions of dollars in global insurance industry assets, the sustainability and viability of the insurance industry continue to be of paramount importance. Innovation in the insurance industry has historically not occurred at the same pace as other sectors. However, the global risk environment and the future of the insurance industry call stakeholders to continue examining the intersection of insurance and technology. Artificial intelligence (AI) represents a powerful segment of technical innovation that has the potential to both revolutionize insurance risk evaluation in decision-making and operational efficiency and effectiveness, as well as to help create value by engaging in innovation in established industry principles and operations.