Esko Kivisaari
Chairperson AAE Artificial Intelligence-Data Science Working Group


Artificial Intelligence (AI) has been a hot topic for a long time now, and is a development which promises to further transform many aspects of our lives. To understand what this could mean for actuaries, we should start from something we are certain of: data sets are the foundation for predictions which underpin risk measurement. Machine learning and other AI tools make it possible to consider vastly expanded data sets, and as such to potentially develop entirely new ways to evaluate and analyse risks.

Many people – in insurance, technology and elsewhere – reflexively feel that more information can only be a benefit. And studies suggest that so far that has been the case. But other heads worry about trouble downriver: what if AI facilitates so much granularity of data that the pooling of similar risks becomes practically impossible? Or uncertainty is eliminated so risk-sharing is no longer appropriate? Perhaps predictions could become so precise that premiums are simply unaffordable? Or maybe greater intelligence in risk calculation could even change people’s behaviour? These considerations are pivotal to the continued success of a mutualised approach to risk. And actuaries would also interject that greater accuracy in predictions doesn’t change the fact that actual outcomes will always be stochastic.


On the other hand, harnessing AI in relation to certain admin-intensive, high-frequency risks is likely to make insurers able to offer coverage that is currently uneconomic for their clients, thereby expanding insurability. Furthermore, many actuarial models rely on calibration by humans, which leaves them vulnerable to personal error and bias – a problem which well-trained AI can eliminate, but you may buy into model error and data bias which actuaries can help to avoid. Many AI implementations which can improve risk evaluation are already in use, from handling simple claims-related tasks and better detection of fraud, to preventive initiatives facilitated by smartwatches and other devices.


We can already see that AI developments are likely to have a wide impact, and that they have the potential to send shockwaves into unexpected places.


As this change is already in progress, a full understanding is key to preventing negative outcomes and optimising the benefits. With this in mind, The Actuarial Association of Europe (AAE) has published a discussion paper titled “AI and the opportunities and challenges it presents to insurability”. This paper examines the prerequisites that make a risk insurable, as well as the mitigating factors which can impair insurability, and also takes a deep dive into the implications of AI on all of these.


This blog is written on a personal title with the assistance of Yestrans.

20 February 2023


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