Will a Computer Be Making Claim Decisions on Your Loss? AI Will Be a Dominate Factor in the Future of Claims Handling

Insurance claims departments are increasingly investing in developing and using artificial intelligence (AI) to reduce claims labor costs and respond to claims inquiries. AI-powered claims processing is creating a new method of claims handling by automating traditionally manual, labor-intensive tasks prone to human error. This includes data entry, document review, image review, claims response, and fraud detection. By leveraging AI, insurance companies believe they can increase throughput, enhance customer satisfaction, improve claims expense forecasting, and significantly reduce claims time and labor costs.

One article, Why AI? 7 Benefits of AI Driven Claims Management, noted that by next year, “60% of claims will be triaged with automation.” Letters, images, voice recordings, and emails will be scanned and then responded to through AI. The belief is that this can be done faster, cheaper, and better than by humans.

Zurich noted the following in a brochure, Rapid Damage Assessment:

Rapid Damage Assessment leverages our proprietary NatCat models, imagery, weather and property data, and augments it with deep AI algorithms to determine damage at every insured property level. It is then aggregated at portfolio and other geographic levels to deliver damage insights.

AON made the following statement in 5 Ways Artificial Intelligence Can Boost Claims Management:

AI possess the power to not only transform the claims process, but also fill the skills gap due to an aging claims professional population and lack of new resources. The most successful insurers will be the ones who take the time now to create a strategic AI plan for the future. Insurers that have a full understanding of their people, process, technologies and risks associated with implementing this new technology will gain a competitive advantage over competitors. They will become more efficient, improve customer service and achieve better claims outcomes to significantly lower loss ratios and ensure future financial success.

Accenture, a company that consults with many major insurance companies, made a report, “Why AI In Claims and Underwriting?” It conducted a survey with many insurance claims executives. The finding was that to remain competitive, replace an aging workforce, and improve claims accuracy, AI must be implemented now because the costs to do so make it a profitable return on investment.

When major insurers and their consultants say that AI is going to be implemented into claims handling because it is more profitable and accurate to do so, believe it. I think this is going to happen a lot sooner rather than later. Indeed, my research suggests a race is going on about how to implement this technology into the claims handling processes.

Insurance law firm Locke Lord noted that insurance regulators are concerned and trying to keep up with the new technology that its insurance clients are deploying. In Artificial Intelligence Regulation In The Insurance Industry— 2023 A Year In Review, the firm stated:

2023 has been a very productive year for regulators advancing their efforts to understand new technologies and consider whether and how to regulate the rapidly developing technologies, including artificial intelligence, predictive models and algorithms. Keeping in mind that existing insurance laws and regulations often are broad enough to sweep in the new technologies, both the industry and regulators desire a better understanding of how the technologies are being used and how to approach their regulation. In 2023, many initiatives took root and spurred further efforts to protect consumers in the wake of new technological innovations impacting the insurance industry. To put it in perspective, McKinsey estimates that generative artificial intelligence’s impact on productivity ‘could add the equivalent of $2.6 trillion to $4.4 trillion annually across the 63 use cases’ that McKinsey analyzed potentially exceeding the United Kingdom’s 2021 GDP of $3.1 trillion.

Moreover, three fourths of that value ‘falls across four areas: Customer operations, marketing and sales, software engineering, and R&D.’ As such, the insurance industry is poised to significantly increase its profitability by deploying new innovation and artificial intelligence in its operations and distribution systems. Likewise, Locke Lord is prepared to partner with its clients in these endeavors and strives to assist its clients in navigating the dynamically changing regulatory landscape.

A less optimistic outcome was expressed by Liberty Ritchie in a post, The Future of Property Insurance: The Impact of Using AI on Claim Handling:

One concern about AI in insurance is the potential for bias in claims handling and underwriting. Algorithms are only as good as the data they’re fed, and if that data is biased, then the results will be biased as well. For example, if an algorithm is developed based on historical claims data, it may inadvertently discriminate against policyholders in certain neighborhoods or with certain types of homes. This could lead to policyholders in these groups receiving less coverage or facing higher premiums.

As we know, insurance companies have a strong financial incentive to keep their costs as low as possible – often at the expense of policyholders. Implementing AI algorithms skewed to lower costs will allow them to do this even more efficiently. Lack of transparency around how AI algorithms are developed and used by insurance companies exacerbates this issue, as policyholders and industry professionals have no way to evaluate the accuracy and fairness of AI-driven claims decisions.

Finally, AI will further depersonalize the claims handling process. Every claim and every policyholder is different, and they deserve to be treated as such. With fewer human interactions, policyholders may feel like they have no recourse if their claim is mishandled or denied. Many policyholders already feel like they are just a number to their insurance company, and AI can’t replace the empathy that’s often needed when dealing with policyholders who are going through a difficult time after a loss.

The bottom line is the insurance claims industry believes that machine learning and data analytics can transform the claims process. Reading industry articles leads one to conclude that AI will improve customer experiences, automate claims processing workflows, optimize human interaction, speed claims processing times, prevent fraud, and mitigate risks associated with regulatory compliance. If so, I can imagine many insurance and independent claims adjusters must be wondering if they are going to be replaced by a modern day thinking, viewing, and talking machine.

Thought For The Day 

AI doesn’t have to be evil to destroy humanity—if AI has a goal and humanity just happens to be in the way, it will destroy humanity as a matter of course without even thinking about it.

—Elon Musk