As losses from extreme weather increase, insurers are rapidly adopting AI risk assessment models, with one in four now using AI for convective storms and 18% for wildfires, according to a recent survey by ZestyAI.
ZestyAI’s survey, which collected responses from 200 senior insurance leaders, explores how the industry is responding to the challenges posed by extreme weather.
The research revealed that stochastic models are the most popular approach for assessing storm risks, with 45% of respondents citing them as their preferred tool. For wildfires, 54% favour traditional actuarial models based on historical data.
When asked which model they consider most accurate for predicting risk, 27% favored traditional actuarial models, 26% preferred stochastic models, and only 20% saw AI and machine learning models as the most accurate. However, 27% believed a combination of models provides the best risk prediction.
Despite these preferences, 73% of insurance leaders believe AI models will play a crucial role in managing climate-related losses.
Senior managers in the actuary, product management, and underwriting departments are most concerned about severe convective storms, with 34% identifying this as their top issue.
The most important factor in selecting an AI-powered predictive risk model is widespread adoption within the insurance industry, with 45% ranking this as their number one or number two priority. Adoption by trusted peers (40%) and price (37%) follow closely behind. Regulatory approval (31%) and model transparency (20%) ranked lower.
The survey also revealed a broad consensus on the importance of AI for the future of the insurance industry, with 80% saying it enables new avenues of profitable growth and 73% stating that carriers adopting AI will outcompete those that do not.
Among those already using AI risk models, 81% feel they are ahead of their competitors in addressing climate change challenges, compared to just 66% among those relying on traditional models.
90% of insurance leaders are calling for greater transparency in predictive models to improve communication with policyholders about risk mitigation strategies.
Attila Toth, Founder and CEO of ZestyAI, said, “With the growing threat of extreme weather events, we are seeing accelerated rates of adoption of AI-driven models within the insurance industry to assess risk.”
Toth added, “AI has an incredible capacity to transform the insurance industry by enhancing the capability of carriers to protect the assets and wellbeing of policyholders in an increasingly complex world. This enthusiasm is reflected in our research – the consensus among insurance leaders is that AI will be a crucial enabler for realising profitable growth going forward.”
