The climate crisis has swept across the globe, forcing companies to adapt. “There is nothing natural about the new scale of these disasters,” UN Secretary-General Antonio Guterres said. “Floods, droughts, heatwaves, extreme storms and wildfires are going from bad to worse, breaking records with an alarming frequency.” The UN’s United in Science says greenhouse gas concentrations are at record highs and fossil fuel emission rates are now above pre-pandemic levels after the lockdown trough. The climate crisis will continue to escalate, bringing with it damaging and unpredictable weather patterns.
Climatewise, a global network of 29 insurance industry organizations based at the University of Cambridge, warns that the disparity of uninsured or underinsured assets has quadrupled over the past 30 years, posing considerable risk to society. Data shows that if more people are insured at the time of a disaster, the recovery is quicker and less money is taken from the taxpayer. AI can be an ally in narrowing the protection gap and the answer for insurers wanting to stay ahead of the climate threat.
Storms, floods and fires caused $260 billion in losses in 2022. With uninsured losses come large bills that customers, businesses and governments must pick up. As insurers tighten their rates in the areas affected most by climate disasters, insurance premiums have risen to unaffordable levels for low- and average-income customers. Ironically, these are likely to be the same people most affected by climate change. Thus, the protection gap – the difference between total losses and insured losses – widens.
AI Is an Insurer’s New Best Friend
Artificial intelligence is already used daily within our personal and private lives, for example in voice assistants, image recognition, weather monitoring, shopping, online banking and healthcare. AI and deep machine learning also have the potential to make significant contributions within the insurance industry, making processes more accurate, secure and efficient.
Through AI, insurers can price competitive premiums and personalize policies to customers. Artificial intelligence can be used to collect large amounts of accurate, real-time data. With this high-quality data obtained from aerial imagery, properties can be accurately 3D-mapped at scale. Insurers can then use this information to predict the likelihood of a claim being filed as well as the likely cause of the claim. For example, when pricing a home insurance policy, information about the property’s location, roof condition, risk of flood and such like, can help insurers set premiums based on defining criteria. Insurers would be able to predict and prevent claims before they happen, ultimately saving time, money and resources.
AI can also make claims processing quicker and easier while maintaining efficiency and accuracy. Currently, application processing and check distribution takes weeks or even months, with teams needing to physically inspect damages. AI could automate the process to hours or even minutes, for example by using footage from street and garage cameras to reference vehicle damage after an accident, prompting customer loyalty. For those uninsured or under-insured, the reduced transaction costs of automated technology also mean that AI can make insurance more affordable and easy to use.
Extended reality can be used to automate underwriting by leveraging virtual and augmented VR. Insurers are able to virtually inspect homes both before issuing a quote and after a claim is filed. Rich and precise data allows companies to perform online adjustments to claims rather than physically inspecting damages, painting a more accurate picture of the value of the claim. This would reduce the number of employees needed for time-consuming processes around claims management and payout.
Insurers also have the opportunity to help communities prepare for climate disasters and better equip them with the tools and knowledge needed to evolve with the climate crisis. Using collected data, companies can advise communities against bad planning decisions, such as erecting high buildings near coastal flooding zones, or by encouraging building resilient infrastructure that will mitigate rising sea levels. Insurers can also contact property owners directly, advising them on their property’s current state and hazards. By reaching out to customers before a disaster, highlighting, for example, problematic trees and foliage growing on or around their property or a nearby wildfire risk zone, insurers have the ability to thwart disasters, saving time, money, resources and, in extreme cases, lives.
The cost of insurance fraud is more than $309 billion a year – nearly $1,000 for every American. Data collected and curated by AI can spot repeated behaviors and trends and can help insurers detect fraud and prevent risk. It can spot abnormalities in data as well as false information that customers use to get bigger claims payouts and lower premiums. Similarly, AI’s ability to can help insurers identify inconsistencies and can draw attention to fraudulent claims, preventing unnecessary payouts and drawn-out investigations. Artificial intelligence would also assist in the learning of customer habits, making valuable recommendations by simplifying how products are categorized and promoted.
The Importance of High-Fidelity Data: Climate Change and Beyond
Reliable, top-quality data will give insurance companies the competitive edge they need to survive the climate crisis. The quality of AI models will only be as good as the data on which it operates. AI systems that use outdated historical data are ill-equipped to assist insurers with the ever-evolving threat of climate change. Rich data is therefore essential for AI to operate effectively and be accurate enough for insurers to use. Thus, one of the biggest trends we can expect to see is the dramatic increase in data veracity and a move toward making data more accurate to ultimately allow better business decisions.
The gathering and refining of in-depth, high-quality data can help insurers set risk, determine premiums, develop products, triage claims, prevent fraud, enhance customer loyalty and decide on what markets to target. AI can assist insurers in adopting a whole-system planning approach when responding and preparing for a climate emergency, fortifying the industry against this systematic threat.
Insurers, governments and businesses must work in cooperation to protect both society and the economy from the adverse implications of climate change. Thus, organizations should be aiming for cross-sector collaboration, building a system of risk management fueled by intelligent data. The insurance industry is on the verge of a tech-driven shift that relies on the sharing, using and refining of data and AI resources.