Leveraging AI for Automated Insurance Policy Pricing

Abstract

Global economic, social, political, and environmental changes are transforming the operating frameworks of different sectors, including the financial services industry, among them the insurance sector. Traditional business practices are increasingly pressed by a high-tech environment. The insurance industry is being directly revolutionized from multiple angles, such as digital distribution, product innovation, underwriting, and so on. A trend might involve automating processes that have traditionally been performed manually, with relevant implications in the pricing process. It is in this scenario that the theme of this essay is set, which addresses the automated pricing of insurance policies by leveraging artificial intelligence.

In general, insurance pricing refers to the activity of defining the annual premium that the client should pay. In the highly competitive insurance market, this process must also guarantee that the price of the coupled policy is accurate. The application of AI brings, on the one hand, the possibility of improving the accuracy of this process, reducing the possibilities of incorrect policies and reducing complaints. On the other hand, the possibility of competing in other segments, given the increasing level of software and electronic components used in cars, yachts, and industrial machines, becomes an opportunity and not only a simple necessity. In order to achieve these goals, in general, we answer the following questions: (1) How to be profitable in a highly complex and diversified environment? (2) Are there hidden parameters that have not been considered or quantified enough? Management in the insurance sector seems to be closely linked to an 'interpretation' approach while instead leveraging artificial intelligence might provide a complementary approach. Finally, research can contribute to achieving the managerial objectives of increased customer satisfaction and switching from selling insurance policies to offering protection that encompasses the dynamics of digitalization.