How insurers can weather extreme storms with AI

By Roi Amir

In recent years, the insurance industry faced a significant uptick in claims resulting from adverse weather events, and the devastating storms experienced across the central and eastern US over the last few weeks have insurers once again bracing for a surge in claims. As storms, floods, wildfires and other natural disasters linked to climate change become more frequent and severe, insurers are grappling with the dual challenge of managing and rapidly processing an increased volume of claims, while attempting to minimize fraud.

Artificial intelligence has emerged as a pivotal tool in addressing these challenges, offering innovative solutions to streamline claims processing, help detect fraudulent claims and ultimately improve customer satisfaction.

Streamlining claims processing

Unexpected surges in insurance claims because of increasingly unpredictable weather patterns across the planet pose two challenges for insurers. One challenge is how to ensure damaged properties can be reinstated as swiftly as possible. The other challenge is how to resource the peak in claims without taking on additional, expensive staff at short notice when there are already talent shortages within the industry.

This is where smart use of technology can really set insurers apart from the crowd. AI-based tools can be used to help speed up the initial assessment of claims and triage them so that more urgent cases are prioritized. Some straightforward claims such as damage to a household item can be settled automatically and in near real time. With technology, these types of claims can be assessed, validated and resolved within hours rather than weeks or even months reducing claims backlogs and ensuring that human adjusters can focus on more complex cases.

In fact, in a piece of research Spout.ai conducted last year, claims handlers themselves told us that technology would greatly improve their role. Forty-three percent of claims handlers working in property and casualty insurance said that reviewing and processing documents was the most tedious task for them - and 40% said their most tedious tasks was data entry and updates. More than half (55%) stated that they wanted more data and insights tools to support them with their job.

When claims require verification, AI tools can automatically source external data points to support with validation. For example, AI can refer to local weather reports or police records as well as analysing images of property damage submitted by policyholders and estimating repair costs. All of this accelerates decisions and reduces unnecessary delays.

Improving the customer experience

The capabilities of AI tools don’t just benefit the insurer by speeding up claims processing and easing the burden on loss adjusters following a natural disaster. They also have significant benefits to customers. At a time when many customers could be experiencing severe financial and emotional distress, AI frees up capacity for experienced loss adjusters to focus on complex cases that require empathy and nuanced judgment.

Despite common perceptions and fears that AI will de-humanise customers' experiences with service providers, the reverse is often true. While AI is associated with automation, it also plays a key role in enhancing the human element of claims handling by reducing the administrative burden of claims processes, taking over administrative-based repetitive tasks so that claims handlers can spend more time delivering better customer experiences

As well as enabling more human interaction for customers, AI technology can also ensure greater accuracy in claims outcomes by automatically cross-referencing claims with specific policy terms to work out who and what is covered in a specific incident so that customers are provided with clear and accurate resolutions. All of this can remove some of the emotional and financial stress for customers associated with the claims process, helping to create stronger customer satisfaction and loyalty for insurers.

Tackling the rising burden of fraud

A surge in insurance claims following an extreme weather event is often linked to a spike in fraudulent claims. Without AI technology, it would be very difficult for claims handlers to detect fraud manually when faced with an overwhelming volume of claims to sort through. Insurance fraud is a particularly important issue at this moment in time as The Coalition Against Insurance Fraud recently estimated that insurance fraud costs the U.S. an incredible $308 billion a year.

Further research from the Reinsurance Group of America 2024 Global Claims Fraud Survey highlighted that 74% of respondents indicated the number of fraud cases is either holding steady or increasing compared to previous years. In the face of these challenges, AI is an extremely effective tool in combatting fraudulent activity. It can help insurers process and verify claims data with speed and precision, catching obvious discrepancies but also identifying subtle, emerging patterns of fraud.

Powerful data processing tools enabled by generative AI can detect fraud by comparing a current claim, say for storm damage to a property or vehicle, against a vast database of imagery, documentation and existing claims data, flagging irregularities in real time. Using AI technology can help insurers stay ahead of fraudsters, protect their financial health, and keep premiums low for honest customers – all of which is essential to ensure a fair and sustainable insurance market.

Preparing for an unpredictable future

The increasing frequency and severity of adverse weather events across our planet is forcing insurers to reconsider how they both assess risk and process unpredictable surges in claims. AI stands at the forefront of this transformation, offering tools that streamline operations, improve accuracy of outcomes and reduce losses due to fraud. By embracing AI, the insurance industry can not only navigate the challenges posed by climate change but also provide more resilient and responsive services to policyholders in their times of need.