AI Is Shaping the Future of Underwriting, Fraud Detection, Risk Management

By Will Behnke 
Policy Analyst, RMFRC 

Artificial intelligence (AI) is increasingly influencing all aspects of the world around us, and that includes actuaries and the insurance sector. The incorporation of advanced technologies like AI has facilitated evolution in businesses as a whole, providing increased efficiency, lower costs, and an enhanced customer experience. 

As July 16 is Artificial Intelligence Appreciation Day, it is appropriate to acknowledge how AI technology streamlines tasks traditionally handled by humans, such as gathering information, analyzing data, and drawing conclusions. AI is most effective when it processes large amounts of data. Numerous AI applications are currently utilized in the insurance industry, touching areas such as underwriting and claims processing. 

The use of AI in insurance is relatively new, but as technology advances, insurers will keep innovating to harness the power of AI to transform the industry. With its capacity to analyze vast amounts of data—as well as reason, learn, and solve problems—AI is propelling the insurance industry toward a proactive stance focused on prediction and prevention.  

Currently, the Academy’s AI Subcommittee has several ongoing initiatives that cover various ways AI is being utilized in the insurance industry. The members provide their expertise on AI in insurance, as well as responsible uses of AI, validation metrics, and uses of machine learning and large language models. The subcommittee is monitoring the industry and providing their expertise on ways actuaries can utilize AI in a safe and responsible manner. They are also coordinating with the other practice areas of the Academy, along with the analogous professionalism committees and our communications team, to ensure that everyone remains aware of all the ways the Academy is looking at the impact of AI to the actuarial profession. 

One of AI’s immediate uses is relevant in the underwriting process. The underwriting process is inherently complex, but AI technology can streamline and enhance many of its associated tasks. By automating processes like the collection of customer data—such as location, marital status, and other demographics—insurance companies can leverage AI in underwriting to develop more competitive and personalized pricing. 

Fraud detection is another use for AI in the insurance industry. AI tools excel in swiftly identifying anomalies in claims data and accurately pinpointing inaccuracies entered by customers, outperforming human capabilities in speed and efficiency. These tools can promptly flag such instances for review by a human to ensure AI properly did its job as a resource.  

Advanced data analytics facilitated by AI enables insurance professionals to efficiently analyze complex datasets, encompassing historical claims records, customer demographics, market trends, and environmental data. AI is particularly valuable in predictive modeling, aiding in the assessment of loss data and forecasting future risks. By collecting and analyzing data, AI provides insights into potential risk management challenges and helps define the business’s overall risk appetite. Moreover, this information can be utilized to anticipate future concerns.  

As AI technology advances, insurers may gain capabilities that could potentially surpass the boundaries set by local and global privacy and consumer protection laws. Consequently, it is crucial for companies implementing AI to proactively identify potential challenges and establish guardrails to ensure compliance with governance standards regarding the use of these technologies. 

Given the rapid advancement of AI technology, regulatory guidance is still evolving. The European Commission is at the forefront, leading the way with a comprehensive global regulatory framework for the use and development of these technologies, potentially setting a standard for regulators worldwide.  

However, it is incumbent upon insurers to ensure that the use and development of AI is guided not just by profitability, but also by a strong commitment to ethics and trust. President Biden’s recent AI Executive Order as well as the NAIC AI Model Bulletin are federal and state level examples of AI regulation in the United States. With the ever-changing landscape, it is very likely we will continue to see legislation and regulation on AI evolve across all types of industry.  

The Academy has identified AI as one of the six key mega-issues that are top-of-mind during this 2024 election season. The Election 2024: Issues Clearinghouse spotlights recent work from the Academy and its volunteers on this topic, including an issue brief on discrimination considerations in AI learning. Contingencies has also been at the forefront of thought leadership about artificial intelligence for many years—explore the topics in focus section to see how thinking on AI has evolved over the years.