U.S. natural catastrophes and climate change-driven extreme weather poses mounting risks to society and property insurers. This is one of the statements in a new report by Re/Insurance Practitioners Journal (RIPJ).
Rudram Nagarajan, CEO and co-founder of Quantemplate, a software provider for reinsurance pricing algorithms made a report on this topic. According to him, AI and machine learning technologies are playing a key role in creating solutions to these challenges.
“Artificial intelligence-based insurance models are expected to experience massive growth and competition from tech-enabled innovation”. Nagarajan says. “AI tools will increase underwriting and claims efficiency, aiding underwriters to cut through layers of uncertainty inherent in the process. This will transform the self-service policies experience for consumers
It’s difficult to quantify the economic impact that AI technologies will have on the global insurance industry. However, today’s artificial intelligence/machine learning models are able to perform complex risk assessment calculations. However, their performing even reaches rates that are essentially equal to those traditionally achieved using human models, estimates Mr. Nagarajan.
“AI/machine learning technology will prove more efficient in underwriting, especially for low-risk, perils with a large cash return” he says. “However, there is no indication that these benefits will be universal. Geographic boundaries between reinsurance regions will vary and we will still requite other sources of information e.g., oil and gas, transportation, municipal infrastructure.”
As a consequence, the fallback position is likely to be using partially AI models for the most complex perils which require access to alternative data sources. “Once there is this access, AI models will likely have the ability to underwrite on a more generalized level, and re/insurers will need to add human ‘expertise’ to the models, making the balance between their underwriting models and those of human underwriters more effective,” Nagarajan says.
The report examines the trend in applying artificial intelligence to risk modeling. It examines why and how AI can be useful for the reinsurance industry. Also, potential applications in prevention and growth of insurtech companies, and how AI models can apply to more complex, perils.
Andrea Miteski, PhD and MD in the field of reinsurance. Long term senior insurance executive with specialization of reinsurance optimization.