Underwriting in the age of AI

EY’s Rodney Bonnard and Ed Majkowski highlight how generative AI is changing the (re)insurance sector.

Initial deployments of generative AI in the specialty insurance and reinsurance markets demonstrate that it is well on its way to revolutionising the sector, particularly in underwriting.

Recent research from EY-Parthenon shows how industry executives around the world view the opportunities from operationalising GenAI within their organisations. Most respondents (69 percent) are prioritising use cases to transform a specific part of the value chain. For example, within underwriting, initial applications in the specialty and reinsurance space have focused on data ingestion, risk assessment and triage – all foundational capabilities that carriers will build on in future deployments.

Our survey respondents expect to see considerable return on investment:

  • Eighty-two percent of large insurers (with more than $25bn in direct premiums written) cite productivity gains as a primary driver for implementing GenAI
  • Sixty-five percent of all insurers expect a revenue uplift of more than 10 percent
  • Fifty-two percent of respondents anticipate cost savings of 11-20 percent

GenAI may transform cyber and climate risk underwriting in particular. The creation of synthetic data and simulation of entirely new attack vectors enable more expansive and detailed scenario modelling. Similarly, GenAI enables more precise analysis of past attacks and criminal behaviours. For climate risk, the combination of data from Internet of Things sensors and AI-powered real-time monitoring provide more precise risk insights to prepare for storms and natural disasters.

Insights from these exercises can be applied to modelling for specific industries, regions and types of companies, ultimately leading to more tailored policies and risk-based pricing. GenAI may even facilitate a profound shift away from traditional protection products and towards data-driven loss prevention and analytics-enabled advisory services. Such a value proposition is especially appealing for asset-linked (re)insurance classes.

Managing AI risk and preparing the culture

Technologies as powerful as GenAI come with inherent risks, of course. For insurers, the priorities are assessing the potential for bias in underwriting decisions and ensuring interpretability, two areas of intense regulatory scrutiny. Strong governance models will be necessary to address ethical concerns and ensure responsible use of AI.

The impact on organisational cultures is another concern. Beyond allaying the fears that AI will replace human underwriters, senior leaders should emphasise how AI-enabled tools and workflows free skilled professionals to focus on higher-value (and more meaningful) work. Firms will aim to strike the right balance between AI-driven automation and human judgement, while also identifying the skills and capabilities workers need to thrive in the age of AI.

The bottom line: the early phases of a long journey

The question isn’t if GenAI can benefit specialty and reinsurance carriers, but rather how soon and to what extent. Those firms that are simultaneously setting a clear strategic direction from the top of the organisation and encouraging bottom-up experimentation and innovation will be best positioned to derive value from their GenAI investments soonest.

Rodney Bonnard is EY UK financial services markets leader

Ed Majkowski is EY Americas financial services and insurance markets leader