Artificial Intelligence: Insurance Considerations and Use Cases

Artificial Intelligence: Insurance Considerations and Use Cases

Artificial intelligence used to be considered science fiction, but more industries are finding valuable ways to use the feature.
Jim Charron
Jim Charron, Director of Underwriting – Technology Industry Practice, The Hartford
Brad John
Brad John, Life Sciences Industry Practice Lead, The Hartford
Matt King
Matt King, Vice President of Data Science in Middle & Large Commercial, The Hartford
The idea of walking into a room and asking a virtual assistant to turn on the lights or having a car steer on its own used to be science fiction. But as technology has evolved, artificial intelligence (AI) has grown into an asset that’s used in countless ways.
Artificial intelligence isn’t new. In fact, it’s been around since the ‘80s.1 But the market is rapidly growing. One source believes the global revenue for artificial intelligence will reach $327.5 billion in 2021 – a more than 16% increase from 2020.Different factors are behind this growth, such as more advanced computing and investment from large tech companies.3
From construction and life science businesses to the insurance industry, companies are using artificial intelligence to increase efficiency and productivity. But it can also present more risk. And from an insurance perspective, it raises questions around liability. That’s why it's essential that businesses make sure they have the right protection.
“With AI, it’s really sophisticated,” said Jim Charron, underwriting director for the technology industry practice at The Hartford. “There are a lot of unknowns when it comes to figuring out liability and insurance coverage.”

How Is Artificial Intelligence Used?

Different industries use artificial intelligence in a variety of ways.
  • UPS uses an AI GPS tool to create more efficient routes for its drivers.4 The company also uses an AI algorithm to provide a more accurate estimate of when a package will get delivered after it leaves a warehouse.5
  • Some life science companies are using artificial intelligence to help speed up the completion time of studies and literature review.6
  • Google and Tesla are using AI to help advance their self-driving project.
  • Apple uses artificial intelligence to evolve Siri, its virtual assistant, and for on-device suggestions.
  • Software for video camera systems in construction or manufacturing can help identify unsafe practices or risks in real time.

How Is Artificial Intelligence Used in Insurance?

Insurers are using artificial intelligence to provide more accurate pricing. This is especially important for mid- to large-size businesses.
“As you increase in size, your risk exposure also dramatically increases,” said Matt King, vice president, data science in Middle & Large Commercial at The Hartford. “When you get into middle and large commercial, there’s so much uniqueness in risks, so it’s more challenging to streamline the underwriting process.”
It’s not uncommon for these kinds of businesses to have tens or even hundreds of locations. Sending someone to each location to evaluate risk exposures to determine insurance cost is unrealistic. So, how can you look at each location without physically going there? Through aerial imagery.
It’s one of the ways The Hartford is using artificial intelligence. The company layers artificial intelligence on top of aerial photos, which can identify the condition of a roof. The insurer uses this technology for new customers and existing policyholders during renewals.
During the renewal process, if there’s a change in roof condition for a customer, King explained that the file goes to an underwriter for closer review.
“If the imagery says you have a bad roof, it doesn’t do anything deterministic,” King noted. “It flags it and gives it to an underwriter to take a closer look at it. So, it’s not like the AI’s determination immediately results in a premium increase.”

The Risks of Artificial Intelligence

Although there are benefits to artificial intelligence, it can also create new risks for businesses. Right now, artificial intelligence isn’t a fool-proof feature.
One of the biggest risks has to do with privacy rights, according to Privacy International. Consumer products that use artificial intelligence can collect large amounts of data without a user’s knowledge, the organization states on their site. Other uses of artificial intelligence that puts people’s privacy at risk include:7
  • Identifying people who wish to remain anonymous
  • Inferring and generating sensitive information about people from non-sensitive data
  • Profiling people based upon population-scale data
  • Making consequential decisions using this data, some of which profoundly affect people’s lives
There’s also the risk of discrimination. For example, an AI algorithm used to evaluate a credit card application can deny someone based on their gender, which is against the law.
In its guidelines for company use of artificial intelligence, the Federal Trade Commission (FTC) described how an artificial intelligence-based system can help hospitals treat COVID-19 cases more efficiently through resource allocation. But this system can worsen health care disparities for people of color if the data it uses reflects “existing racial bias in health care delivery.”8
AI decisions can also suggest the wrong diagnosis, treatment, or worse, result in patient injuries or death when used in a hospital setting.

Artificial Intelligence and Changing Regulations

There aren’t any artificial intelligence regulations in the U.S., but that may soon change.
In January, the U.S. Food & Drug Administration released an action plan for artificial intelligence and machine learning-based software as a medical device.9
In March, financial regulators requested information on how banks use AI.10
In April, the Federal Trade Commission published guidelines to help businesses make sure their use of artificial intelligence was true, fair and equal.11
Other countries are also considering enacting regulations for artificial intelligence. This can be concerning for companies that have locations or operations overseas. Europe, for example, released a proposal to regulate how companies use artificial intelligence. Under the rules, companies that use AI systems in an illegal way can face a fine up to 6% of their global annual revenue or 30 million euros – whichever is higher.12
While regulations can limit how a company uses artificial intelligence, it can also keep consumers safe and help reduce a business’ risks.
“Anticipated enhancements to the regulatory scheme will help both an insurer and company,” said Brad John, Life Sciences Industry Practice Lead at The Hartford. “While adopting and adapting new practices is always a risk and challenge, the consistency brought by applying the guidelines will help by identifying best practices and a consensus standard that will serve to minimize variability and risk.”

Artificial Intelligence and Insurance Liability

Depending on how a company uses artificial intelligence with its products or services, liability can be difficult to identify. Some car companies are using artificial intelligence to help advance driver-assistance technology. With AI, certain cars can:
  • Steer and drive within lane lines on its own
  • Read speed limit signs
  • Know when to apply emergency braking to try to reduce damage from a collision
  • Alert drivers not paying attention
But if someone were using one of these features and got into an accident, who’s liable?
“When you look at traditional products liability, it’s based on tort liability,” Charron explained. “Who's at fault has to be based on tort and where the negligence was. Was it in the design? Was there an error in how the software is supposed to work?”
Because of this uncertainty, underwriting insurance coverage can get complicated, Charron added.
For simpler uses of artificial intelligence, it can be easier, like using a smart speaker for example. Charron explained that insurers look at what kind of product liability risks are present with the speaker without any smart features. And that information is then compared to any risks that may be present after adding in artificial intelligence.
“We’re looking at the increased risk after you add in the AI and what it exactly does,” he said. “Because AI adds more capability and the risk scenarios change significantly, so we must evaluate a wider spectrum of risk.”

Insurance Considerations for Artificial Intelligence

Because of the uncertainty with how much a business’ risk can increase from using artificial intelligence, Charron recommended companies review their existing insurance coverage to make sure they have enough protection. Some policies to look at or consider getting include:
The use of artificial intelligence can also affect a company’s business income valuation and the coverage limit chosen, Charron noted.
“Income streams that are augmented by AI can be interrupted by the loss of data or connectivity,” he explained. “Understanding how income is affected by an interruption and the potential for such an interruption is essential to determine an adequate business income limit.”
Since every business is unique and use cases for artificial intelligence will vary, work with your agent or broker to make sure you have the right coverage.

The Future of Artificial Intelligence

Decades ago, the idea of a virtual assistant reading and replying to messages or having a computer analyze an image to determine the condition of a roof seemed unlikely. As time went on, artificial intelligence became more sophisticated and valuable to different businesses. In fact, 61% of respondents in a Deloitte Insights Report said artificial intelligence will “substantially transform their industry in the next three to five years.”13
Car companies are continuing to work towards autonomous vehicles. Hospitals and health care systems can potentially use artificial intelligence to help with diagnosis and more advanced treatment plans.
Insurers are pairing artificial intelligence with connected devices, or Internet of Things, to reduce losses. One example is with the use of water sensors, which can turn off a water supply or send an alert if it detects a leak.
“By using water sensors, there’s the possibility of saving several hundreds of thousands of dollars in loss avoidance,” King explained. “You can turn a bad water loss into an OK water loss by getting to it quickly.”
It’s clear that AI will continue to evolve and can be a valuable feature for businesses –
and ultimately customers and clients.
“You can build a lot of different AI systems or come up with what you think is the greatest way to use it,” King said, “but it’s not about being fancy and innovative. It’s about making a difference.”
1, 3 Wired, “The AI Resurgence: Why Now?”
2 IDC, “IDC Forecasts Improved Growth for Global AI Market in 2021”
4, 5 Forbes, “5 Examples of How AI Can Be Used Across the Supply Chain”
6 Kantify, “5 Pharma Companies Using Artificial Intelligence”
7 Privacy international, “Artificial Intelligence”
8, 11 Federal Trade Commission, “Aiming for Truth, Fairness and Equity in Your Company’s Use of AI”
9 U.S. Food & Drug Administration, “Artificial Intelligence/Machine Learning (AI/ML)-Based Software as a Medical Device (SaMD) Action Plan”
10 Harvard Business Review, “New AI Regulations Are Coming. Is Your Organization Ready?”
12 Brookings Institute, “Machines Learn That Brussels Writes the Rules: The EU’s New AI Regulation”
13 Deloitte, “The Future of AI”
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