By Robin Hartill | Nerdwallet
Your insurance provider might have more information about you than you know.
The technology prevalent in today’s society—smart home gadgets, drone images, fitness trackers, social media posts, and telematics programs that monitor your driving habits—can assist insurers in building a comprehensive understanding of your actions.
Your consent is not always necessary. Many details about your residence, vehicle, and neighborhood are publicly available. Additionally, data brokers collect and sell information about your activities, such as the stores you frequent, your online clicks, and the location of your mobile phone.
For an individual, handling all this data is overwhelming. However, artificial intelligence's ability to interpret data could revolutionize the insurance purchasing process and the claim filing process. As insurers confront concerns about fairness and privacy, some individuals may encounter challenges in obtaining coverage, while others will enjoy reduced rates, faster applications, and simpler claims procedures.
Quicker insurance applications
As insurance companies adopt AI, customers may experience a streamlined application process.
According to Peter Flynn, head of personal lines for the Americas at insurance consulting firm Xceedance, insurers may significantly reduce the number of questions in a home insurance application.
“In the future, they might only ask five questions,” Flynn says. “But they might gather 5,000 additional data points, and they might interpret those 5,000 things in addition to the five answers they get from the applicant.”
For instance, Chicago-based Kin Insurance collects numerous data points and automatically fills in home insurance applications with property details like square footage, foundation type, and number of bathrooms.
A similar change is occurring in life insurance underwriting, which typically involves a medical exam along with a health and lifestyle questionnaire. As AI models improve, more providers are offering accelerated underwriting, quickly issuing policies to low-risk customers based on digital medical records and other data, while referring higher-risk applicants for standard underwriting.
“You can input a small amount of information and they can provide a rate that’s not determined by someone visiting your residence and drawing blood,” says David Embry, CEO of online insurance broker Mylo.
To obtain the most accurate rate, ensure that your records are accurate and up to date before initiating a life insurance application. You may also want to have supporting documents, such as a summary from your doctor regarding any medical conditions, readily available.
More customized insurance rates
As insurers use data to develop increasingly personalized profiles of their customers, low-risk individuals can expect to save money.
The auto insurance industry is at the forefront with telematics programs that monitor factors like your speed, braking patterns, and mileage, enabling insurers to establish pricing based on driving behavior.
“In an AI-enabled or machine-learning-enabled environment, they can take that to an infinite degree and gather and collect as much data as available and interpret it in real time,” making predictions based on an individual’s habits, Flynn says.
While cautious customers benefit from a frequently adjusted prediction model, a 2020 report from the Organization for Economic Cooperation and Development cautions about the potential drawback of this method. Allocating customers into smaller risk groups may effectively price some applicants out of insurance, according to the OECD report.
For drivers, the wise approach is to compare quotes from multiple car insurance companies. Insurers do not all utilize the same data sources, and they evaluate each factor differently. Simpler claims, and perhaps fewer of them
Filing an insurance claim can be a tense experience. Insurers' use of AI could streamline the process for customers and provide them with a decision — and their payout — much more rapidly.
AI can aid insurers in identifying the most urgent claims, reconstructing accident scenes, analyzing medical records, and flagging cases for signs of fraud, according to a 2023 report by research firm Everest Group and professional services company Ernst & Young. Making claims more efficient is a top priority for over half of the property and casualty insurers surveyed, the report notes.
New York-based insurer Lemonade states that AI-driven
insurance fraud detection allows roughly 40% of its claims to be resolved in a matter of moments. AI might even help avert losses before a claim is necessary — a concept known as a “predict and prevent” model rather than the current “detect and repair” approach. For instance, data transmitted by smart-home devices could automatically prompt intervention if, for example, a sensor detects early signs of a leak or a frozen pipe.
AI can also provide feedback to drivers, assisting them in modifying their behavior. Initiatives like Allstate’s Drivewise reward individuals who avoid risky behaviors such as speeding, hard braking, or using a phone while driving.
However, as the insurance sector integrates AI, there are concerns regarding cybersecurity, privacy, and the potential for AI models to exhibit discrimination based on characteristics such as race or gender.
The National Association of Insurance Commissioners issued guidelines in December 2023, urging insurers to rectify errors in AI models and avoid bias. However, each state establishes its own regulations, and oversight is still in its early stages.
Oversight will develop, Flynn asserts. “But I’d wager that the technology advances more rapidly than the regulation.”
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The article initially appeared on While AI raises privacy concerns, it may make insurance more affordable and user-friendly for some. NerdWallet.
