Our team of actuaries and students presented this topic at Pinnacle University (Pinnacle U) in March 2021. Read more about Pinnacle U 2021 here.  

Efficiency and accuracy have always been big objectives of business, specifically efficiency in customer service and work processes. Artificial intelligence (AI) has proven helpful for businesses looking to accomplish those objectives and, as a practice, has moved to the forefront of many professional fields, including insurance. AI’s growing implementation has the capacity to reshape the way we experience insurance – and not just in expected ways, like enhanced mobile applications or written premiums for newly automated vehicles.

One deeply affected area involves the administrative side of insurance. Historically, even the simplest of claims could take several days to process, and more complex claims could require substantial human interaction. Advanced AI systems now route claims, increasing efficiency with technology that helps identify and protect against fraudulent claims. The expedited process from online interfaces, chat boxes and virtual claims adjusters is drastically cutting administrative costs for insurers.

AI’s efficiency also cuts costs for insurers by reducing needed staff, as it has the capability to provide around-the-clock accessibility for insureds. Virtual call centers, online applications and computer-generated advice allow for constant access to virtual insurance “agents,” after business hours or on weekends. Not only does this 24/7 accessibility provide more convenience and comfort to insureds than ever before, it has a direct impact on the insurer’s bottom line.

While there are clear benefits from an efficiency standpoint, it’s important to consider how consumers will perceive these AI implementations. It raises some interesting questions, and answers may be widespread. Would a younger generation of consumers be more accepting and open to dealing with automated responses and callers? Are older, less tech-savvy consumers more likely to take exception to AI chat boxes and virtual call centers? Insurers are daunted with the task of providing exceptional service for a wide array of individuals with varying preferences.

AI is already changing the way consumers and insurers experience insurance. But what effect will AI have on actuaries? First and foremost, actuaries will need to cultivate an innovative mindset as they embark into new and uncharted territories. Whether implementation of rates for fully autonomous vehicles, impact on cyber insurance premiums for companies using AI for data collection, or advances in AI technology in senior care that soften the commercial market, it is very likely that traditional actuarial methods will need to be adjusted or examined through a different lens.

One area where actuaries might see dramatic change is with paid and reported loss patterns. Actuaries typically look at prior loss experience of a company at various evaluation points, and attempt to extrapolate how new losses will develop based on these selected patterns. If claim closing rates are dramatically changed, the historical evaluation points may become less predictive, posing challenges. It will be interesting to see how pooled loss development from AI-driven companies (used as an industry benchmark) react as AI becomes more common, and if this might be an area actuaries can lean on to more accurately project losses of AI-driven clients.

AI is certainly here to stay, and insurers will need to become comfortable with AI’s capabilities or run the risk of falling behind competitors. Actuarial decision-making will be at the forefront as companies approach this new element.  

Mitch Caster is an actuarial analyst II with Pinnacle Actuarial Resources in the Bloomington office. He holds a Bachelor of Science degree in Quantitative Analysis from Franklin College (Ind.) and has experience in assignments involving loss cost projections, loss reserving and enterprise risk captive markets. He is actively pursuing membership in the Casualty Actuarial Society (CAS) through the examination process.