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Artificial Intelligence

Last Updated 10/14/2021

Issue: Artificial intelligence (AI) is a technology which enables computer systems to accomplish tasks that typically require a human's intelligent behavior. Examples include gathering information, analyzing data by running a model, and making decisions.

The use of AI has increased exponentially across all industries. The rise in accessible data, increased computing capabilities, and changing consumer expectations has led to a strong acceleration of AI development. We are now using AI throughout the landscape of our lives-often without realizing it. Consequently, AI is rapidly evolving and creating viable opportunities for business growth. It is disrupting and improving organizations across all industries, including insurance. Companies such as IBM, Apple, Google, Facebook and Amazon are leveraging AI platforms and solutions for customers, partners and employees.  In the insurance industry, AI is transforming areas such as underwriting, customer service, claims, marketing and fraud detection.

Background: Over the past several years, AI technology has progressed immensely and continues to develop and improve all the time. It has become increasingly proficient at performing tasks historically difficult for computers to execute, including recognizing images, identifying spoken words and using unstructured data. The acceleration in AI is being driven by exceptional technological advances along with a major shift in customer expectations. Higher computing power, memory capacity, cloud computing, big data technologies, and global connectivity of both people and machines have enabled machines to run complex algorithms faster than humans and handle more input data than a human could. Moreover, shaped by their experiences with other industries, insurance customers, particularly millennials, now expect quick on-demand services.

The successes of AI are also facilitated by the massive amounts of data we have today. The wealth of data we now create is astonishing, and the speed at which data is generated has only made data management tools like AI even more important. Whether it is structured or unstructured data (e.g., social media, wearables, telematics, sensors, news, weather and traffic reports), AI is helping insurers make sense of big data. As of 2018, driverless test cars produced roughly 30 terabytes of data a day, stemming from on-vehicle sensors and digital maps. Statistical models cannot handle the large quantity of data. As AI is able to execute complex analyses and computations at a speed impossible for humans, it generates faster insights.

AI has the potential to affect the insurance industry in multiple ways. It is currently used in claims processing, underwriting, fraud detection and customer service. For example, to improve customer experience, many insurers are investing in virtual assistants like chatbots. A chatbot is a digital service capable of holding natural sounding conversations with human beings with the aim of accomplishing particular tasks, such as answering questions. In addition to answering questions, chatbots are available 24/7 to give basic advice, check billing information, and address common inquiries and transactions. Insurers currently using chatbots include startup Lemonade, Geico, Allstate and Lincoln Financial. In addition, claims management can be augmented using machine learning techniques in different stages of the claim handling process. Machine learning models can help quickly assess the severity of damages and predict the repair costs from historical data, sensors and images. Lemonade, for example, asserts that, as early as 2016, its chatbot Jim settled a claim within 3 seconds. 

Moreover, insurers are sitting on a treasure-trove of big data, the main ingredient AI requires to be successful. The abundance unstructured data can be leveraged through AI to increase customer engagement, create more personalized service and more meaningful marketing messages, sell the right product to customers and target the right customer.

A 2021 PwC survey found that the most effective use of AI in insurance companies is in the customer experience space while insurers top AI-related concern is the potential for cybersecurity breaches with AI technology. Looking forward, AI will enable insurers to move from a "detect and repair" framework to a "predict and prevent" framework, allowing insurers to help their customers manage their risks and avoid claims altogether.

Status: The insurance industry has only begun its venture into AI, with many traditional insurers' experimenting with new ways to incorporate it into their day-to-day operations in anticipation of further technological development. InsurTech startups are also utilizing AI to develop solutions to streamline operations, create better underwriting models and enhance customer service. However, while AI provides opportunities for traditional insurers to modernize themselves, implementing AI is not straightforward. Traditional insurers could face challenges integrating AI into their existing technology due to issues such as data quality, privacy and infrastructure compatibility.

The NAIC formed the Innovation and Technology (EX) Task Force to explore the technological developments in the insurance sector. The Task Force provides a forum for the discussion of innovation and technology developments in order to educate state insurance regulators on how these developments will affect consumer protection, insurer and producer oversight, and the state insurance regulatory framework. The Task Force is also charged to discuss emerging issues related to insurers or licensees leveraging new technologies, such as artificial intelligence. In addition, the NAIC Center for Insurance Policy and Research has hosted several AI-focused events and webinars most recently at the 2019 Summer National Meeting.

In 2019, the Task Force established an Artificial Intelligence Working Group to study the development of artificial intelligence, its use in the insurance sector, and its impact on consumer protection and privacy, marketplace dynamics, and the state-based insurance regulatory framework.  The Working Group developed regulatory principles on artificial intelligence that were adopted by the full NAIC membership at the 2020 Summer National Meeting. In 2021, the Big Data and Artificial Intelligence (EX) Working Group drafted a private passenger auto survey to learn how insurers in this space are using AI and machine learning. The survey will be issued to insurers in nine states in the fall of 2021. A report of the aggregate responses will be provided to the working group in early 2022.

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Media queries should be directed to the NAIC Communications Division at 816-783-8909 or

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