Artificial intelligence (AI) has become ubiquitous in today’s world, with its applications ranging from mapping applications to personalized recommendations on streaming platforms. However, its role in the insurance sector has been particularly transformative. In this article, we explore the evolution of AI’s role in insurance, drawing insights from Paul Guthrie, the CEO of Envelop Risk.
The history of AI can be traced back to Alan Turing’s groundbreaking paper in 1950, where he discussed the construction and testing of intelligent machines. The term AI was first adopted in 1955 during the Dartmouth Summer Research Project on Artificial Intelligence, which laid the foundation for various technical approaches such as machine learning and neural networks.
AI has come a long way since then and has taken center stage in many industries and governments. According to a report by New Vantage Partners, 99 percent of Fortune 1000 companies were using AI in 2021, with a significant portion investing over $50 million annually. Moreover, 91.9 percent of these businesses reported measurable business value from their AI investments, a significant increase from 2017.
In the insurance sector, AI has revolutionized the way complex data is analyzed and utilized for decision-making. One of the key advantages of AI is its ability to handle large amounts of data and create more reliable models of real-world activity. In the past, modeling teams had to simplify their analysis due to limited resources, relying on theoretical assumptions about the nature of risks. However, AI tools enable the assessment of much more complex systems, leading to more robust and data-driven models.
Envelop Risk, a leading cyber (re)insurance firm, provides a perfect example of AI’s benefits in the insurance industry. By processing firmographic, economic, technical data, and comprehensive claims data, combined with intelligence on cyber threat actors, Envelop Risk’s AI-driven algorithms create granular information that enhances underwriting decision-making. The sheer volume of data involved would require a massive six billion row Excel spreadsheet, highlighting the scale and accuracy AI brings to the table.
AI algorithms are a set of instructions programmed to perform various operations on a dataset, such as regression or statistics. These algorithms can run millions of calculations and make decisions based on interim results, leading to insights that would be almost impossible to achieve manually. In essence, AI tools act as “infinite interns,” providing quick and accurate analysis alongside the ability to handle the complexity of today’s digital and interconnected world.
AI’s contribution to the insurance industry extends beyond data analysis. It plays a crucial role in risk assessment and mitigation. By learning from past events and analyzing commonalities, AI can help insurers identify potential risks and create strategies for future scenarios. For example, in the case of a ransomware attack on a healthtech company, AI can quickly encode the unique fingerprint of the event and compare it to similar incidents to uncover root causes and mitigation strategies. This process enables insurers to perform scenario analysis and estimate market losses and exposure efficiently.
As AI continues to evolve, its applications in the insurance industry will only grow. However, it is important for insurers to distinguish between the glitz and hype surrounding AI and focus on delivering real value to their customers, business, and capital partners. By leveraging AI effectively, insurers can accelerate their processes, enhance accuracy, and navigate the complexities of an increasingly digital world.
In conclusion, AI has become an integral part of the insurance sector’s evolution, enabling insurers to analyze complex data, assess risks, and mitigate losses more efficiently. Its contributions have transformed the way insurers operate and hold promise for further advancements in the future.