The impact of artificial intelligence along the insurance value chain and on the insurability of risks

Abstract

Based on a data set of 91 papers and 22 industry studies, we analyse the impact of artificial intelligence on the insurance sector using Porter’s (1985) value chain and Berliner’s (1982) insurability criteria. Additionally, we present future research directions, from both the academic and practitioner points of view. The results illustrate that both cost efficiencies and new revenue streams can be realised, as the insurance business model will shift from loss compensation to loss prediction and prevention. Moreover, we identify two possible developments with respect to the insurability of risks. The first is that the application of artificial intelligence by insurance companies might allow for a more accurate prediction of loss probabilities, thus reducing one of the industry’s most inherent problems, namely asymmetric information. The second development is that artificial intelligence might change the risk landscape significantly by transforming some risks from low-severity/high-frequency to high-severity/low-frequency. This requires insurance companies to rethink traditional insurance coverage and design adequate insurance products.