AI’s Impact on Commercial Insurance: Shifting Dynamics
The insurance landscape is rapidly evolving, largely due to the advancements in artificial intelligence (AI) and generative AI. While technologies like blockchain saw limited adoption, AI is becoming an integral part of insurance operations. According to experts from Duck Creek Technologies, this technological shift presents both challenges and opportunities for commercial insurers. This article examines how AI is changing underwriting, client expectations, and risk management within the commercial insurance sector.
One key trend, according to Matthew Priestley, director of solution architecture at Duck Creek, is the increasing influence of a more personalized experience, similar to personal-lines insurance, in the commercial sector. Commercial clients now expect greater transparency, online access to their products, and control over their data.
While the move towards greater digital access benefits insurers, integrating AI into commercial lines underwriting presents several issues. These issues include the complexity of the underwriting data and the need for clear regulatory guidelines. Priestley suggests insurers carefully balance human expertise and judgment (the ‘art’) with data-driven insights (the ‘science’) when incorporating AI into underwriting. “It’s really about using underwriters’ knowledge, skill sets, and data to train AI models. Commercial underwriting has always been a balance of art and science, with underwriters relying on deep expertise,” he told Insurance Business. “As AI becomes more integrated, it shifts more toward the science side, but the key is ensuring it supports underwriters rather than replacing their judgment.”
Addressing Complexity in Commercial Insurance
Commercial insurance lags behind personal lines in AI adoption due to the complexity of risks. Lines of business such as marine or commercial auto have become increasingly intricate due to factors like extreme weather, geopolitical instability, and cyber threats. Johan Nelis, director, solution consulting, Asia Pacific at Duck Creek, notes, “The interesting challenge is that as insurance becomes more complex,”. “How do you keep it as straightforward as possible while addressing risks like climate change?”
One solution is componentized insurance, where coverage is broken down into customizable elements. This allows businesses to tailor their insurance without navigating an overly complex process. AI plays a crucial role in providing the desired customization. Nelis emphasizes that true simplicity enables insurers to make insurance easy to use while layering in sophistication beneath the surface.
Priestley is careful to stress that the primary aim of AI is to augment commercial underwriters, not to replace them. AI’s role is in data analysis. “It’s very much about looking to crunch those amounts of data, help them come through pricing decisions quicker, and to get more volume into what was the most interesting thing or a point of discussion,” he said.
The Power of AI in Risk Management
AI is making significant strides in risk management. AI and the Internet of Things (IoT) are providing new ways to track and mitigate risks before claims arise. The increasing unpredictability of risks, such as climate change and cyber threats, is making risk management an expectation among insureds rather than an optional service.
For example, in marine insurance, monitoring cargo and ship conditions can prevent major losses. Priestley highlights the shift from simply covering losses to proactively reducing risk. “This includes ensuring proactive measures—like monitoring ship repairs in ports—to prevent major losses.”
Affordability concerns also encourage innovation. Rising premiums cause businesses to reconsider their coverage, and many opt out altogether. Nelis suggests solutions such as parametric insurance or flexible pricing models. “For example, allowing customers to set a budget and then tailoring coverage accordingly, based on their specific risk profile. This approach would give people more control over their insurance options.”
Traditional underwriting models don’t always accommodate financial constraints. Through AI and technology, the industry is opening up to alternatives. Nelis believes that the refinement of underwriting processes is the most exciting part. “What was once highly manual is now driven by data and automation. The challenge for underwriters is to continually refine their processes, embedding improvements over time,” Nelis said. “Our CEO, Mike Jackowski, calls this the ‘jeweler’s screwdriver’ – a mindset of constant, precise enhancements rather than just executing tasks.”
