Natural Disasters, AI and Insurance Risk Assessment

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businessman on tablet looking at AI and insurance risk assessments

Introduction

Hurricane Ian made its way across Florida in late September 2022, causing tens of billions in estimated insurance losses due to wind and flood damage. Now, half a year later after the disaster, homeowners are still picking up the pieces and rebuilding with the payouts that have been slowly coming out from insurance policies. However, many have had the unexpected shock to learn that flooding was not a part of their homeowners insurance. Here we explain natural disasters, AI and insurance risk assessment.

This event and many like it are stark reminders to both individuals and businesses that checking in with their insurance company to review insurance policies is something that needs to happen regularly, not because something may have gone unnoticed, but because things change. These changes might look like the addition of a swimming pool or security cameras to a property, or even a renovation of the kitchen. Adjustments to property, lifestyle upgrades and yes even changes in the weather, can impact your policy needs. Risk categories can update automatically without policyholders being aware, and sometimes without your insurance agent being directly aware, and your policy could be out of date without you even realizing it.

When it comes to hurricanes, the Geophysical Fluid Dynamics Laboratory predicts that Atlantic hurricanes will become stronger over the next century with more intense rainfall. This means that areas that were not previously part of flood zones can be now, which will impact insurance coverage. The need to review risk assessment extends beyond hurricanes to other natural disasters, including wildfires, river flooding, and flooding due to urban development. This means you might now live in a higher-risk area, be insufficiently covered, and be in need to upgrade your policy. Now we’ll talk about AI and insurance risk.

Risk Assessment & Artificial Intelligence

Risk assessment, also known as underwriting, is the methodology used by insurers to evaluate and assess the current and potential future risks associated with an insurance policy and its holder. This risk assessment helps determine the viability of coverage and then the varying cost fluctuations of an insurance policy based on need. Figuring out the optimal premium to charge isn’t always a straight line, and there is still a lot of uncertainty that keeps people from getting the most cost-effective and best coverage possible.

AI (artificial intelligence), is helping bridge this gap of uncertainty. There are a plethora of variables that go into determining what insurance is necessary for a specific policyholder. Most individuals are aware of the variables like age and sex, but major life events such as a change in marital status, going away to college, a change to diet or alcohol consumption, or a change in employment can also impact your insurance needs, risk, and coverage.

AI steps in by being able to gather data from a variety of first and third-party sources to provide a personalized recommendation that helps ensure people are neither under nor over-insured. For example, for the past decade, telematic insurance policies via either a black box that is plugged into the car or an app downloaded to the driver’s phone to record driver behavior have been gaining in popularity and are a current step in the direction that the insurance industry is going. In the next 10 years as IoT devices become more prevalent in our households and everyday lives, items such as fitness trackers, home assistants, smartphones, and smartwatches will continue to produce a multitude of data points to aid in how insurance providers understand their clients. New and upcoming data categories such as clothing, eyewear, home appliances and medical devices will further add to the ability for insurers to provide personalized experiences in increasingly real-time service delivery. AI and insurance risk work hand-in-hand.

Zelros has chosen to be one of the first insurtech providers to take the first step of providing the first AI solution specifically built for the insurance industry–a solution that integrates directly with the software insurance agents use to facilitate policy recommendations. Taking advantage of this technology is beneficial not only to the policyholder but can support government and public safety initiatives such as the National Flood Insurance Program (NFIP)

Looking towards the horizon, we need to be mindful of the global insurance protection gap that is growing year after year. In fact, in the past five years alone it has grown $1.42 trillion, according to reinsurance provider Swiss Re. This reflection points to a market where the insurance being purchased has been disconnected from what is needed by the customers at the point of need. As we continue to build more homes, buildings, and other structures in more vulnerable areas, the need for accurate and up to date risk assessment is vital, as is the need for policyholders to understand their coverage impact. This is all part of how AI is helping the insurance industry advance in ways that other industries have already forged, to better serve the needs of their customers.

Conclusion

Over the next five years, we predict that AI recommendation engines will become essential to insurance providers’ ability to not only serve their customers but remain profitable. Customers are demanding more from the companies they spend their money with, and now is the time for insurers to adopt the advantages of AI. In the next 10 years by 2030, the next step of recommendation engines will be in full implementation. These engines will shift the conversation away from one of simply protecting the policyholder once an incident has occurred, to one of preventing the incident from occurring altogether. The insurance players that will come out on top will be those able to provide fast and accurate underwriting solutions at affordable prices. This capability with the help of AI will secure their customers’ trust as policyholders and lifelong partners. AI and insurance risk assessments will now be the norm.

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