How AI Could Set Premiums in Real Time

Integrating AI into insurance technology would allow for continuous risk assessment and, thus, adjustment of premiums. 

An artist’s illustration of artificial intelligence (AI)

In a not-so-distant future, where the boundary between humans and technological innovation blurs, imagine that you’re sweating through your daily workout at the local gym. It’s 7:30 a.m., you’ve been running for 30 minutes, weight lifting still ahead, and when you slow down to check the time, you get a notification on your phone: 

“Great workout! That’s four in a row! Your health premium has been marginally reduced to 
{insert number} …” 

Seems like a stretch? Maybe. But I’d argue that it’s not — and that it would be a good thing.

A key driver that has consistently shaped the U.K. market over the past three years is the integration of AI cloud data. Businesses across a variety of industries are exploring how AI can drastically enhance their offerings, and one sector that stands out prominently in this transformation is insurance.

While we navigate the rapid integration of AI into our lives, few of us grasp the degree to which it will interlace seamlessly with the intricacies of insurance. It’s not crazy to think that there will come a day — even soon — when insurance firms leverage AI to adjust the cost of premiums in real time, turning each commitment to a healthier lifestyle into a currency of lowered premiums.

The dawn of pay-as-you-live insurance

The integration of AI, coupled with the abundance of data from internet of things (IoT) devices and wearables, is already creating a dynamic and personalized insurance experience.

Looking forward, your insurance premium could soon easily be determined minute by minute based on data from your health tracker, smart home devices and even your car. This transformative emerging approach to insurance is rooted in the concept of pay-as-you-live, where individuals have incentives to adopt healthier and safer lifestyles.

In this scenario, your health tracker would communicate with your insurance company, verifying that you are engaging in physical activities. Consequently, your premium would decrease. Similarly, wearable tech in cars and smart homes combined with AI could contribute to a comprehensive understanding of your behaviors, creating a live feedback loop that could significantly affect your insurance costs. 

Here are a few more concrete examples that illustrate how AI could soon integrate into insurance:

See also: 5 Ways Generative AI Will Transform Claims

1. Driving behavior and telematics

In auto insurance, AI-driven telematics will soon play more of a pivotal role. Imagine a policyholder with a smart device installed in their car that monitors driving habits, including speed, adherence to traffic rules and even the choice of routes. While there are already apps out there from insurance companies that track how you drive for periods to ultimately adjust your premium or rate, with AI algorithms this would happen in real time. If a driver were to consistently demonstrate safe and responsible behavior, their insurance premium would be lowered. Conversely, poor driving habits could result in a higher premium. This approach would not only encourage safer driving but also establish a direct correlation between individual behavior and insurance costs (though I suspect most people won't be thrilled).

2. Smart homes and theft prevention

The integration of AI with smart home devices will likely also transform insurance into a guardian of property. For instance, if an individual's smart home security system detected unauthorized access or a potential break-in, the AI could instantly notify the insurance provider. In the event of a burglary despite the security measures, the insurance payout process could be expedited through AI-assisted claims processing. This live interaction between smart home devices and insurance systems would not only protect the insured property but also streamline the insurance experience.

What all this really boils down to is that integrating AI into insurance technology would allow for continuous risk assessment. As people go about their daily lives, algorithms would analyze data from wearables, smart devices and other sources to determine the level of risk associated with various activities. If someone is mitigating risks, perhaps by choosing safer routes or maintaining a secure home environment, the AI would adjust their insurance premium accordingly.

See also: Can AI Solve Underlying Data Problems?

Balancing “Big Brother” concerns with positive outcomes

While the idea of constant monitoring will undoubtedly raise concerns for some about privacy and a "Big Brother" presence, others might agree that the net societal benefits cannot be ignored. The data collected through AI tracking would enable insurers to identify accident hotspots, encouraging individuals to take safer routes and drive responsibly. This would not only enhance road safety but would also create a healthier and safer society.

Moreover, this data-driven approach extends to the concept of “vitality insurance,” wherein policyholders who are contributing to their well-being are rewarded with lower premiums. As health becomes a vital building block in determining insurance costs, people will surely be motivated to adopt healthier habits, creating a positive feedback loop that could benefit policyholders and keep them motivated toward a safer lifestyle.

Simon Pickersgill

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Simon Pickersgill

Simon Pickersgill is managing director at Qualitest UK, an AI-powered quality engineering company.


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