Artificial Intelligence (AI) is rapidly transforming industries across the board, and Property & Casualty (P&C) insurance is no exception. It can revolutionize the way insurance companies operate. AI can offer improved customer experiences, increased automation, and enhanced security. But how will this translate to you, the policyholder? With the recent uptick in climate-related events, many homeowners have begun investigating weather-related endorsements to add to their policies. Let’s examine the relationship between AI and home insurance claims, and how it can assist with climate-change-related claims.
What is AI?
With the rise of Chat GPT – the sophisticated chatbot developed by OpenAI – Artificial Intelligence (AI) has exploded into public consciousness over the last year. It has also changed how people live and work across all industries, including property insurance. AI is the simulation of human intelligence in machines that are programmed to think and learn like humans. They assist in automating complex tasks and making data-driven decisions faster and, oftentimes, more accurately. In P&C insurance, AI advancements help insurers provide better insurance products and services. In Canada, insurers use AI to make more informed decisions and improve operations. From underwriting and pricing policies to claim processing and fraud detection, AI drives innovation across the insurance sector. Additionally, it helps insurers manage risk more effectively.
Ways AI Can Assist Home Insurance Claims
Increased Accuracy in Predictions
By analyzing large amounts of data, insurers can identify patterns and trends that would otherwise be difficult and laborious to detect. This allows them to make better underwriting decisions, set more accurate prices, and ultimately reduce their risk exposure.
Tailored Offerings to Customers
AI can help insurers personalize their offerings by analyzing a customer’s data and behaviour. Insurers can now tailor their policies to meet their unique needs and preferences.
Savings on Premium
Some property insurance companies offer usage-based insurance (UBI), which allows policyholders to pay premiums based on the actual usage of their property. For example, if a policyholder only uses their vacation home for a few months of the year, they may be able to pay a lower premium than someone who uses their home year-round.
A 2020 National Association of Insurance Commissioners (NAIC) survey found that over 50% of insurers reported using predictive analytics.
Streamlined Claims Processing
AI-driven claims management systems can process claims in real time with automated algorithms and routing that removes the burdens of manual assessments. Insurers can expedite the process by instantly verifying details and assessing the validity and scope of claims, improving satisfaction and trust. “If AI can assist in speeding up the claims process – and there are indications that that could be the case – then that could be a perfect tool for the industry and consumers,” says insurance broker Daniel Ivans, who has used AI to help match consumers with the right insurance policies.
Advanced Technologies (i.e. Chatbots)
Chatbots powered by AI technology are increasingly used to assist policyholders with inquiries, provide instant responses, and improve customer service.
Reduced Risk of Insurance Fraud
By cross-referencing data from multiple sources, AI can identify potentially fraudulent claims in real-time. While the up-front costs of fraud detection will continue to increase, using AI to stay a step ahead of fraudulent users may provide long-term financial and personal benefits to insurers and customers.
The Rising Cost of Home Insurance Claims Due To Climate Change
The summer of 2024 brought about a host of climate change disasters: Calgary was hit by hailstorms, Toronto and Montreal faced floods, and wildfires in Jasper, British Columbia, forced over 20,000 people to evacuate. According to the Insurance Bureau of Canada, these events caused $7.7 billion in insured damages, making it the most expensive summer on record for weather-related insurance claims. Amidst this climate chaos, homeowners increasingly turn to their insurance providers for answers on protecting their homes.
Climate Change Damages
Climate change’s cost has steadily increased over the past half-century. Unfortunately, we aren’t seeing the amount or cost of natural disasters going down soon. According to Climateinstitute.ca:
- Climate-induced damages will slow Canada’s economic growth in 2025 by $25 billion annually, which is equal to 50% of the projected GDP growth.
- Flood damage to homes and buildings may increase from $60 million annually to as much as $300 million annually by mid-century and tenfold by the end of the century, with costs as high as $13.6 billion annually.
- Without adaptation, national costs from permafrost thaw road damages may cost up to $200 million annually in the next decade.
A Leger survey commissioned by RATESDOTCA finds that 17% of all homeowners contacted their insurer to review their home insurance coverage in response to worsening wildfires and floods, an increase from 14% the previous year. And new homeowners are eager to protect their most significant asset as well. One-third of respondents who purchased their home within the last two years (33%) added at least one climate-related endorsement to their home insurance, an increase from only 20% the year before.
The Insurance Bureau of Canada (IBC) reports that severe weather in Canada now causes insured losses that regularly surpass $2 billion annually.
Canada’s Seasonal Changes Set Precedent
Suppose this past summer was any indication of what’s to come. In that case, the industry will need faster, quicker, more permanent ways to streamline claims and anticipate future risk as severe weather events worsen. While the Canadian government has proposed a national flood insurance program expected to run in April 2025, insurers aim to provide affordable coverage for homes in high-risk areas.
That’s where artificial intelligence technology can step in. Efficiency is essential during times of crisis, as more homeowners change or update their insurance policies and file more claims. After the extreme weather events that have become seasonal in Canada, the insurance industry must embrace a faster claims process utilizing innovative technology. This will make operations more efficient while cutting down on administrative costs, all while improving customer satisfaction.
AI and Property Insurance
To manage increasing claims and queries, insurers increasingly turn to AI for customer service support and to find new solutions. Property insurance companies are putting their massive amounts of data to optimal use by using AI to craft individualized policies. This involves collecting data about a policyholder’s property, such as location, age, and construction type. This also includes the policyholder’s data, such as their credit score and claims history. By analyzing this data, insurers can accurately assess the level of risk posed by each policyholder. As a result, they adjust their premiums accordingly.
Brad Stastook of the project management office Laivly says AI is crucial in helping brokers and agents be more efficient and accurate. Particularly as more homeowners look for “better, more cost-effective coverage” and for insurers to better keep up with that growth. Laivly’s platform automatically transcribes and summarizes client calls, speeding up the claims process and ensuring all details are correctly recorded. This frees agents to handle more complex tasks. The AI tool also prompts agents to ask important follow-up questions, making interactions quicker and more meaningful. “It can remind agents and brokers to go a level deeper… so it helps move the process to be faster and more accurate,” says Stastook.
AI and Home Insurance Claims: Final Thoughts
Much like climate change itself, new AI technologies are an inevitability. “(They) are like a train; it’s moving, and it will never stop,” says Moustafa Naiem Abdel-Mooty, a researcher and instructor at McMaster University. Around the world, companies are racing to apply AI solutions to track the pace of climate change and provide solutions that help slow it down. As 2024 illustrates, it will continue to affect Canadians and their home insurance profoundly. The best way forward is to employ AI to improve premium costs and provide customized service based on individual customer needs. According to Abdel-Mooty, “People are starting to see that it’s going to benefit everyone, not just the insurance companies, but the people that they insure,” he adds.
While the insurance industry has only just begun its foray into AI, companies are already experimenting with new ways to incorporate AI and home insurance claims into their day-to-day operations. AI is streamlining the insurance process to connect you with carriers more efficiently and with fewer errors. If used correctly, AI can help homeowners save money on home insurance. If you’d like to learn more about customizing your home insurance policy, please contact us below.
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