AI will be game-changer for auto, but insurers are not prepared
Artificial intelligence (AI) will fundamentally transform parts of the re/insurance industry in ways that will surprise us all—and much more quickly than most carriers realise. Some core lines including motor insurance will be transformed sooner than many think.
That is the view of Michael Millette (pictured), co-founder and managing partner, Hudson Structured Capital Management (doing its re/insurance business as HSCM Bermuda), speaking to Intelligent Insurer. He argues that there are many implications the industry is not yet factoring into medium-term planning.
“AI is not on the industry agenda with sufficient urgency.” Michael Millette, HSCM“AI is coming faster than people think; computers are already programming themselves. There are all sorts of implications. AI is going to facilitate cyber attacks, which means it will become a drift factor in cyber claims.
“I also think that AI will make timelines in the movement to auto autonomy much shorter. The industry does not have AI in its top tier of issues and that’s a big deal,” Millette said
He believes that auto autonomy will be a game-changer. He predicts that a healthy percentage of new vehicles will have significant autonomous features by 2030, such is the speed now with which computers can programme themselves. That also means that a sector which produces some 42 percent of industry premiums is facing material changes.
“Auto is the largest line of business globally and it hasn’t changed much from when my grandfather bought his first car and first insurance—owner-driven internal combustion engine cars with indemnity insurance. The sector is not working well now under pressure from legal and economic inflation and driving behaviour,” he said.
“It is certain to change materially over the next 10 years. Electric cars have 80 percent fewer moving parts. Autonomous vehicles will have fewer attritional accidents, but more mass catastrophic accidents due to systems problems. In some respects, auto insurance will become part of the cyber sector.
“But few people are talking about this. I think the auto industry is going to start to change very rapidly. That makes the whole industry less attritional; there will be less money flowing through. That’s a different sort of industry, and there are other effects. AI will invade underwriting—that will inform underwriting decisions.
“This is likely to be a differentiator more quickly than people think. AI is not on the industry agenda with sufficient urgency. Auto is going to be very interesting over the next 10 years. It must change and that will lead to opportunities,” he said.
Shifting risks
Millette is someone who embraces change. A pioneer of the early cat bonds in the 1990s during his time with Goldman Sachs, he has sought—and usually found—parts of the industry in which to innovate, but remains cautious with respect to catastrophe markets.
