The Crucial Role of Economic Analysis in the Age of Data-Driven Insurance

The Evolution of Data in Insurance

Data collection and curation have always been critical to insurance underwriting. However, advancements in artificial intelligence and data analytics have revolutionized how data is aggregated and applied to risk assessment and pricing. This, in turn, increases the importance of economic analysis in insurance. "We are able to understand correlation better and make better predictions to prevent risks that formerly we were just being reactive to," explained Josh Landau, President of the International Insurance Society (IIS), in an interview for the All Eyes on Economics podcast.

The Limitations of AI and the Importance of Human Oversight

While AI and sophisticated models can gather and organize larger, more complex data sets in more interesting ways far more quickly than ever before, they can’t make the sorts of assessments or draw the kinds of salient conclusions that economists and actuaries can. "Drawing a conclusion would be impossible for AI to do," Landau told host and Triple-I Chief Economist and Data Scientist Dr. Michel Léonard. "Really understanding where these non-correlated issues are impacting each other and how they’re impacting decisions, that’s where I see the economist’s role."

Ethical Considerations and Future Directions

Ethical concerns surrounding the use of AI further underscore the significance of critical interpretation by humans. Due to its many extensive investments and ability to determine what projects to insure – or not to — the insurance industry has an “outsized influence,” Landau said. "As a result of that awesome depth and breadth of resources," he said, "it’s important for carriers “to understand how they navigate through this responsibility, how they interact – not only with each other, but also with industry leaders and government leaders."

The digitized space’s potential for inaccuracies, biases, and data breaches presents a dilemma for stakeholders at every level, so managing these risks must always take precedence. Human oversight, diversity in AI training datasets, transparency about use of AI, and responsiveness to stakeholder feedback are all ways for insurers to utilize automated technologies while upholding the industry’s commitment to equity and security.

For readers, it's crucial to stay informed about the latest developments in AI and data analytics in the insurance industry. Understanding the role of economic analysis and the importance of human oversight can help you make more informed decisions in your personal and professional life.