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AI Driven Personalized Life Insurance Premiums; Aye or Nay?

Dec 04, 2018 | 2 years ago | Read Time: 3 minutes | By Keerthika

AI Driven Personalized Life Insurance

Artificial Intelligence can increase the ability of life insurance companies to make fine distinctions in mortality risks, resulting in more risk classes. So, one of the merging trends in life insurance is the increasing number of risk classes as insurers seek to better match risk with premiums. In fact, if the AI is astute at-risk classification, it’s possible that each policyholder would be in his/her own risk class. In other words, we would have personalized premiums, designed and calculated on a custom basis for each insured person thanks to artificial intelligence.

This is a revolutionary thought indeed, as with personalized premiums there will no longer be any risk pooling or sharing.

Now would I buy such personalized insurance products?

Rather than a straight aye or nay, my answer is it depends on the consumer needs. AI or not, the first principles of life insurance has not changed. Life insurance products exist to help people deal with the issues that rise from the two distinct possibilities of their life. The first, securing your loved ones and their finances in case something untoward happens to you. The second, having financial independence and dignity, post retirement. Additionally, many desire to leave behind a legacy, secured by a life insurance policy. So, keep these factors in mind even as you evaluate newer kinds of Life insurance products to see how well they serve your needs.

What’s the role of AI in life insurance?

Now, the AI I’ve been playing round with predicts that I’ll live even longer than my astrologers predicted. A whole decade longer! Both give me more years than the national average reflected in the actuary tables used by insurers. So, perhaps personalized premiums would be lower than average for me, if the proprietary AI used by various companies predicted something along the lines of the AI I use. If companies had enough faith in their AI to not pad up error margins. And companies didn’t simply use AI to increase their own profits, leaving premiums untouched.

With AI, should personalized premiums be lower?

Most definitely yes, especially for term plans, if you see the company as having a good record of promptly honouring genuine claims. In case of ULIPs, you would need clarity on how the lower mortality risk would be reflected in the fees/deductions.

In India, we are used to having premiums fixed throughout the policy period. Some ULIPs and rare endowment plans allow for the insured to voluntarily pay more towards the savings and investment component of their plans. Elsewhere, in the world there is however, something called as variable or adjustable premium. Perhaps in future, life insurance companies using AI can draw from periodic or continuous monitoring of our habits to offer us plans with variable premiums.

How AI will help determine pay outs for annuity plans?

Life insurance companies often sell annuities too. In case of annuities, AI could reverse the dynamic. Those who expect to pay lower life insurance premiums because AI predicts a long life for them, might have to deal with smaller pay outs from their annuities as their corpus would have to last longer without the danger of running out. In case of annuity plans that call for accumulating a corpus before pay outs, if AI predicts a longer life, there is a chance that personalized premiums could be smaller. Having bought a plan to build an annuity once before, would I buy another? Especially if AI made premiums lower? The returns offered were interesting? Perhaps. As of today, annuity payments are taxed, unlike the survival benefits of life insurance policies.


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