Insurers are working at guarding against the risk of excessive price increases for certain customers due to the sector’s move to increasing use of artificial intelligence (AI) in risk assessments.
This is according to a report from The Geneva Association – an international association of insurance companies.
The report explained increased granularity in risk assessments facilitated by AI has enabled a shift from solidarity-based risk pools to a system that assesses risks on a more individual level.
The report warns this transition to individualised pricing can be a “double-edged sword” as while some customers will benefit from lower premiums, others could face the prospect of “significantly higher” premiums.
The report acknowledges that in the case of life insurance, individualisation can reward customers for adopting safer behaviours and that by creating a clear understanding of intentional adverse behaviour, AI can actually safeguard the principle of solidarity.
But the report also revealed insurers are “well aware” of the potential side effects of increasing use of AI in risk assessments and are taking proactive steps to avoid excessive price differentiation.
These include establishing robust guidelines and policies specifically targeted at high-impact AI systems, such as those involved in underwriting and pricing decisions.
The report also found insurers are setting up dedicated governance structures, specifically designed to address the “unique” risks and ethical dilemmas posed by the application of AI in the insurance sector.
By adopting these measures, the report concludes insurers are striving to strike a balance between leveraging AI’s capabilities and ensuring fair and inclusive access to insurance for all customers.