AI and the future of insurance: Managing risk in a digital world

Insurance has always been about managing risk. While insurance companies exist to protect customers and businesses, they are under pressure to use digital technologies to enhance their risk management. In today's world, where risks are constantly evolving and growing, insurance companies must understand the technologies available to assess risk effectively.

According to new research from Wipro, 81% of insurers plan to increase their investment in artificial intelligence (AI) over the next year. The report, which surveyed 100 senior insurance leaders in the United States, found that within five years, AI is expected to consume 20% of insurers' IT budgets, compared to the current 8%. This is more than a budget shift, it's a sign of a bigger transformation happening throughout the insurance industry.

One of the primary challenges of managing risk is that the risk landscape has become increasingly complex. With customer expectations rising rapidly, insurance companies are turning to AI tools to enhance their assessment of exposure, streamline claim response times and deliver personalized services.

AI is modernizing risk assessment

In the past, assessing risk required a significant amount of manual review of structured data, such as claims histories, actuarial tables, and financial statements. The good news is that AI is now building on that work by enabling underwriters to process enormous amounts of both structured and unstructured data, including satellite images, weather patterns, social signals, and scanned documents.

In the study, 68% of insurers report that AI is helping improve the accuracy of risk assessment, while another 68% view AI as a driver of cost savings. For example, when an insurance company underwrites policies for homes in areas prone to wildfires or a business evaluates cyber exposure, AI makes it easier to spot and analyze patterns, identify risks, and respond quickly, far more efficiently and accurately than a human ever could do alone.

Additionally, leveraging AI enables the generation of quotes more quickly. It allows more dynamic pricing, where insurance premiums are adjusted in real time based on various factors, including individual risk profiles, market conditions and user behavior. These capabilities are critical in today's digital world, where customers expect immediacy, transparency, and personalization.

From manual to predictive: Reimagining customer experience

Another way insurers can leverage AI is by utilizing it to enhance customer experience. The survey indicates that 62% of insurers expect AI to lead to higher customer satisfaction, particularly by streamlining claims processing and improving personalization.

For example, AI-powered tools can now review first notice of loss reports, identify potential fraud, and assess damage in just a few minutes. Doing this reduces the time required to process reports, lowers costs, and enables a prompt response to customers with an assessment. This is particularly important since many insurance claims occur during stressful moments, such as a car accident or flood.

The beauty is that insurance platforms utilizing AI make it easy for insurers to recommend coverage based on behavior, life stage, or geography, creating an opportunity for hyper-personalized protection to support policyholders.

Closing the Gaps: Governance, Talent and Legacy Infrastructure

While there is widespread support for using AI, insurers are in the early stages of adopting AI. The data indicates that there are two paths insurers are taking: 46% of insurers have extensively implemented AI systems, while others are held back by legacy infrastructure, limited expertise and a lack of governance.

For example, 44% of smaller insurers haven't implemented policies regarding the use of AI, which exposes them to regulatory and ethical risks. Furthermore, 71% of insurers state that integrating AI with legacy systems is a significant challenge.

With all the hype surrounding digital transformation, implementing new technologies doesn't mean simply plugging them into your existing platform. To reap the benefits of digital transformation, insurers must prioritize implementing effective governance policies, hiring top talent, and developing robust deployment strategies. It's essential to have strong data management frameworks, ethical oversight, and ongoing training to ensure AI is applied responsibly and effectively. The good news is that the survey states that 80% of insurers are investing in training to help employees interpret and act on AI-generated insights.

From underwriting to enterprise-wide strategy

While underwriting is the most advanced area for utilizing AI, insurers are expanding their use across the entire enterprise. The study states that:

• 65% expect AI to improve regulatory compliance
• 56% believe it will increase policy volume
• 50% see AI as a way to reduce underwriting time
• 83% cite its role in fraud detection and prevention

These statistics suggest that AI is enabling insurers to implement strategies that align with their core value proposition, which is to manage risk and provide security to customers.

The path forward

The adoption of AI is now a primary focus for insurers, meaning they must develop a roadmap that aligns cloud-based infrastructure and cross-functional collaboration with core business priorities. Insurers that delay implementing AI throughout their organizations risk falling behind their more agile competitors.

Insurers don't need to choose between innovation and their traditional mission. AI helps insurers enhance their risk management capabilities, support policyholders more effectively, and operate more efficiently, ultimately improving the customer experience and reducing costs.

It's essential to remember that success relies on more than just algorithms. It requires leadership, ethical guardrails, and a long-term view. The insurers that thrive will be the ones who treat AI not just as a tool, but as a strategic way to fulfill their mission in a digital age.