The sensors in your house track your habits and convey them to your insurer, who underwrites your homeowners policy. A customer signs an “honesty pledge” and then reports a claim to the insurer. You’re refunded 30 percent of your premium because you and your friends have been careful drivers.

Executive Summary

PwC's Anand Rao explains how two major disciplines—behavioral economics and artificial intelligence—are coming together to create an individual-based, behavior-driven approach to marketing, underwriting and claims in P/C insurance.

Wishful thinking?

No. Increasingly, reality. InsurTechs are disrupting the industry by better understanding, experimenting with and influencing policyholder behaviors thanks to their application of behavioral economic, advanced machine learning and artificial intelligence technologies.

Insurance traditionally has been the business of risk pooling. For example, maritime insurance has long pooled the risks of multiple shippers to insure them against the loss of crews and cargo. The insurers set the premiums and reserves (for any future losses) to ensure their financial viability while paying out the losses when they occur. To stay in business, insurers accordingly had to understand the severity and frequency of loss events, and actuarial science emerged to understand risks better.

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