Possible Outcomes of Using AI or Robot in Insurance Industry

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financial technology used by regulators or supervisory authorities to help them to monitor financial institutions more effectively and efficiently. In some cases, the applications of RegTech can encompass SupTech.

4.1.3. Possible Outcomes of Using AI or Robot in Insurance Industry

In the insurance sector, using artificial intelligence technology could result in positive or negative outcomes. 財團法人資訊工業策進會【資策會】（2020）found that there are four possible outcomes when financial institutions adopt artificial intelligence technology. The first possible effect is that changing the structure of employment. The next possible effect is that it might result in employment discrimination. The third possible outcome is the invasion of privacy. The last consequence is that it has changed in working conditions.

One of the primary purposes of this study is to determine possible outcomes when insurance companies use AI technology. As a result, several different effects of using AI in the insurance sector are discussed as follows.

 The first advantage of using AI technology in the insurance industry is that it might help insurance companies to improve operational efficiency, shorten claims processing, and reduce operational costs. In the insurance sector, numerous tasks are manual input, such as underwriting and claims. Artificial intelligence can learn with advanced algorithms, then collect data and help users to make decisions, which can increase automation and save service time and space. Therefore, this scenario mentioned above might lead a company to diminish a certain amount of costs.

 The second advantage of using AI in an insurance company is that it could help insurers to improve the internal system’s efficiency and increase the data analysis process’s

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effectiveness. If an insurance company uses a legacy core system and does not introduce AI into the internal business processes, employees might need to spend much time

dealing with daily routines. Also, the best selling point might be the price. Therefore, the best promotion strategy for an insurance company might be that it could provide the cheapest insurance products on the market. To achieve this, AI can help underwriters to collect data they need more accurately. Then they can give actuaries to adjust the current premium rate of insurance products.

 The third advantage of using AI in the insurance sector is that it might help insurance companies to develop parametric insurance (OECD, 2020). The parametric insurance is one kind of insurance product with a fixed payment based on the occurrence of an objective or a triggering event. The first benefit of parametric insurance is that this insurance can cover risks that traditional insurance cannot include. For example, traditional insurance might not pay out to high or low temperatures when no physical damages incurred. The second benefit of parametric insurance is a quicker speed of claims process. Customers can receive a payout when a trigger of a claim has been reached. It is difficult for insurers and customers to have reliable tools to decide the trigger event in the past. After a growing development in AI and blockchain, insurance companies can take advantage of predetermined criteria to trigger claim payments because AI can deal with claims with automation, and better data collection and analysis methods have been developed.

 The fourth advantage of using AI in the insurance industry is that it might increase a new distribution channel. For instance, a casualty insurance department can analyze its full insurance products first. Choosing some insurance products sells through online websites

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or applications on smartphones and offers quotations by robo-advisor to clients. Public liability insurance might be one of the ideal products to sell via a robo-advisor because

some public premises in Taiwan are mandatory to buy a public liability insurance policy.

The specific aim of this strategy is to target some public premises that have low frequency and low loss severity of risks to increase profits. Therefore, this method can decrease costs on distribution channels and provide quotations at a more competitive premium level.

 The last advantage of using AI in an insurance company is that it might help insurance companies to provide better marketing results and customer experience. After issuing multiple insurance policies, artificial intelligence can analyze current and the other potential customers’ preferences to provide customized insurance products to target customers. Also, insurance companies can use that information analyzed from online platforms and forums by AI to set up proper marketing strategies and create innovative insurance products that customers need. Moreover, AI can boost the speed of settling a claim, which might improve customer experience and attract more potential customers to buy insurance policies.

After focusing on different possible positive outcomes when insurance companies use AI technology, we will discuss various scenarios of potential adverse effects for the insurance industry.

 The first probable disadvantage of using AI in the insurance sector is that insurance companies might need to improve data protection of customer’s personal information.

Even though AI usage in the insurance industry has been used in several areas, the AI is

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still the early stage of development. In some circumstances, so there might request

human intervention when AI detects unintended consequences or bias. Hence, in order to

protect personal data and avoid the result in an invasion of privacy. Insurance companies might need to upgrade their IT systems to protect the privacy of their customers.

 The second probable disadvantage of using AI in the insurance sector is that the insurance company might need to adjust their compliance procedures to meet future compliance requirements. It may be a dilemma for supervisory authorities and regulators to find a perfect balance between encouraging start-ups to develop AI technology and using strict regulations for supervision. To address this issue, they already have two methods for start-ups to determine the appropriate regulatory approaches, which are regulatory sandboxes and innovation hubs. However, in order to protect personal privacy, supervisory authorities and regulators might consider making stricter for companies using AI to comply with in the future.

 The three probable disadvantage of using AI in insurance companies is that it might increase operating expenses in the short run. Companies need to recruit new employees.

Those workers must be familiar with AI technology to maintain AI systems. Before introducing AI technology to use, it needs to spend a certain amount of expenses to purchase software and hardware. Then, those systems need to maintain and examine regularly, which will result in maintenance fees and related operating expenses. Besides, those companies still need to recruit new skillful workers to ensure that AI systems can be used smoothly. Moreover, it may be a possible issue is that insurers use AI need to have the ability to integrate existing operating systems with new AI systems.

 The fourth probable disadvantage of using AI in the insurance industry is that it might

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lead to the property insurance industry to be a seller’s market. When AI technology has developed to a new stage, the insurance industry’s current business model might be changed. For example, sharing economy is one of the most well-known examples to use

disruptive innovation to threaten the existing market, such as Uber and Airbnb. In this context, it may lead the market to a winner-takes-all market or an oligopoly, which might have only a few insurance companies for customers to choose their services. Therefore, in this circumstance, the non-life insurance market might become a seller’s market.

 The last probable disadvantage of using AI in the insurance sector is that it might lead to some customers not able to buy the insurance policies they need. An insurance company using AI can help this firm to distinguish what risks it would like to take and exclude those risks that do not want to accept. In the scenario that might increase more

exclusions in an insurance policy, it might scarify customers’ rights to buy the insurance policies they need.