A recent survey by ZestyAI has revealed that 73% of insurers believe AI models are key to managing climate-related losses, as the insurance industry grapples with mounting losses from extreme weather.
The study, which surveyed 200 senior executives in Property & Casualty insurance, found that one in four respondents now use artificial intelligence (AI) models to assess the risk of severe storms.
It highlights a significant rise in AI usage for evaluating specific climate risks. Approximately 25% of insurers use AI to assess convective storms, while 18% apply it for wildfire risk.
However, traditional methods like stochastic models and actuarial data still dominate. For instance, 45% of respondents rely on stochastic models for storm risk, and 54% favour traditional actuarial models for wildfire analysis.
There is no consensus among industry leaders regarding the accuracy of different risk assessment models. While 27% believe traditional actuarial models are most reliable, 26% prefer stochastic models, and only 20% see AI and machine learning models as the most accurate.
However, 27% feel that a combined approach offers the best predictive accuracy, underscoring the evolving debate over which models are best suited to tackle climate risks.
ZestyAI’s research further shows that storm damage is top of mind for insurance leaders, particularly as insured storm losses in the U.S. surged from $30bn in 2022 to over $50bn in 2023.
Among the departments surveyed, 34% of actuary, product management, and underwriting professionals consider severe storms their most urgent concern.
Factors influencing the choice of predictive AI models were also examined. Among respondents, 45% cited widespread industry adoption as the most important criterion, with 40% emphasising adoption by trusted peers and 37% prioritising cost.
Regulatory approval and model transparency were rated lower at 31% and 20%, respectively.
The industry’s outlook on AI is generally positive, with 80% of leaders stating that AI is creating new opportunities for profitable growth, and 73% predicting that carriers with AI capabilities will outpace competitors.
Among those already using AI risk models, 81% consider themselves ahead in adapting to climate challenges, while only 66% of traditional model users share this sentiment.
Attila Toth, founder and CEO of ZestyAI, said, “With the growing threat of extreme weather events, we are seeing accelerated rates of adoption of AI-driven models within the insurance industry to assess risk. AI has an incredible capacity to transform the insurance industry by enhancing the capability of carriers to protect the assets and wellbeing of policyholders in an increasingly complex world. This enthusiasm is reflected in our research – the consensus among insurance leaders is that AI will be a crucial enabler for realising profitable growth going forward.”
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