Changing the game
AI offers the potential for insurers to know potential customers’ risks better than they know them themselves – and that’s good news for buyers, says General Re’s chief technology officer.
As delegates at one morning session of Intelligent Insurer’s Re/insurance Outlook USA 2024 conference heard earlier today, GPT is an important abbreviation in artificial intelligence. But it also has more than one meaning.
For the famous chatbot technology ChatGPT, the letters stand for “Generative pre-trained transformer”. But GPT is an abbreviation that describes artificial intelligence more generally: General-purpose technology.
As Frank Schmid, chief technology officer of General Re, explained, that puts AI among a select group of technologies. “The arrival of a general-purpose technology is a rare event,” he explained. Other examples include the steam engine, electricity, and the semiconductor and personal computer.
“If you look back at the past you know 200 years, those are the three general purpose technologies you would identify and now you have generative AI.”
It is also, he remarked, probably the most general of the general purpose technologies we’ve seen. Given that, discussions and some trepidation in society over its implications are inevitable.
“As an industry, we want to be we are an active participant in this discourse and shape the environment being created for us through legislation and regulatory action, because that's the environment in which we will operate over the next couple of decades.”
Part of its efforts should be to show the potential benefits of AI, and one aspect of this is its potential to broaden access. While some have feared AI could leave some risks uninsurance, generative AI could contribute to closing the coverage gap, Schmid said.
It does so by enabling much greater granularity in underwriting and pricing. “The number one challenge in insurance is asymmetric information,” explained Schmid. Insurers lack the level of insight the customer has about their own risk. This leads to adverse selection, the breakdown of insurance markets and withdrawal of carriers. It also means some insurance markets never exist.
Rather than excluding coverage, giving insurers insight to price policies accurately and granularly enables them to offer it more widely – confident of writing profitable business.
AI offers the potential to overcome the asymmetry of information through increased insight into the risk profile of the consumer “possibly to the point where the insurer knows the consumer better than the consumer knows himself”.
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