Artificial Intelligence and the Insurance Revolution: Who wins, who loses?

AI's integration into the insurance ecosystem also brings many regulatory and ethical challenges to the forefront.

By Dr K. Madan Gopal, Dr K. S. Uplabdh Gopal

Technology has reshaped various industries in the last decade, and insurance is no exception. Integrating Artificial Intelligence (AI) into the insurance sector promises to disrupt how insurance products are priced, sold, and serviced. India, a country with one of the lowest insurance penetrations globally but a burgeoning market, is poised to feel the impact of this technological revolution. As AI transforms this sector, it’s worth asking: who stands to benefit, and who may get left behind?

The Promise of AI in Insurance

AI’s applications in the insurance sector range from risk assessment and fraud detection to personalised customer service and rapid claims settlement. As the global AI trend seeps into India, local insurers have started deploying AI-driven tools to overhaul traditional processes that were once manual and inefficient. Indian insurers such as ICICI Lombard and Star Health are leading the charge with AI-powered platforms that promise personalised health insurance solutions, speedy claim settlements, and the use of facial recognition for health assessments.

AI brings an air of optimism to a country where insurance was long associated with bureaucratic delays. It promises efficiency, cost-effectiveness, and personalisation. Take Artivatic.AI’s claim settlement platform, Alfred, which processes claims within 20-30 minutes—an achievement in an industry notorious for its delays. Even the IRDAI’s recent circular to expedite cashless claim authorisations within three hours fits neatly into this narrative of an AI-driven transformation.

At first glance, AI appears to be the perfect solution to India’s insurance sector woes: making insurance more accessible, affordable, and consumer-friendly. But it’s crucial to examine both sides of the coin. While there’s much to celebrate, this revolution raises concerns about equity, job displacement, and systemic bias.

Who Wins? The Tech-Savvy Insurers and Urban Consumers

Let’s begin by identifying the winners in this AI-driven revolution. The most obvious beneficiaries are insurance companies that can afford to invest in AI infrastructure. These companies—particularly large private insurers like ICICI Lombard, HDFC Ergo, and Star Health—are already tapping into AI to stay competitive. Their advantage lies in automating processes like underwriting, risk assessment, and claims processing, reducing costs and improving accuracy. For instance, ICICI Lombard’s AI-powered health insurance plan, Elevate, offers personalised solutions, while Star Health’s AI-driven face scan tool helps track vital health parameters in under a minute.

These innovations improve efficiency and help insurers tailor products to individual customers. Urban consumers, particularly those familiar with digital ecosystems, stand to benefit significantly. They can expect more personalised insurance packages that align with their health risks or lifestyle needs. Using data from wearables and IoT devices will allow insurers to develop hyper-personalized policies that are more affordable and relevant to each individual.

Furthermore, the integration of AI into customer service, as seen in the rise of AI-powered chatbots, has already begun making the insurance purchasing process more seamless and convenient. Gone are the days when potential customers had to wait endlessly on the phone to speak to an insurance agent. AI tools can instantly offer personalised insurance plans or guide consumers through the claims process.

Who Loses? The Disconnected and the Disadvantaged

As we celebrate the winners, we must not overlook those who risk being left behind. Despite all these technological advances, India's insurance penetration still lags at just over 4%. A significant chunk of the population—primarily rural, lower-income groups—remains underserved. Here’s where the AI-driven revolution may unintentionally exacerbate the divide.

AI relies heavily on data, and in rural India, the lack of digital literacy, poor internet connectivity, and minimal data records limit the scope of personalised, data-driven insurance solutions. While urban dwellers enjoy hyper-personalized products, rural populations may still face generic and costly policies. Further, insurers may struggle to collect and use data from rural areas, creating a mismatch between policy offerings and the needs of these consumers. This could result in a widening insurance gap.

Another critical concern lies in the potential biases ingrained in AI algorithms. AI systems are only as good as the data they are trained on. The results can be skewed if these data sets reflect societal biases—such as underrepresenting specific demographics. In India’s diverse landscape, this could mean that particular communities, regions, or income groups are unfairly priced out of insurance markets simply because the algorithms view them as higher-risk customers based on historical data.

The risk of automation bias also looms large. With more reliance on AI in claims processing, there’s a fear that legitimate claims may be denied due to AI’s rigid algorithmic models, leading to customer frustration. We’ve already seen global lawsuits around AI's use in health insurance, where AI models incorrectly denied care, as seen in the case of UnitedHealthcare’s use of AI-driven nH Predict. Similar incidents in India could erode trust in the insurance industry.

The Threat to Jobs: A Silent Crisis?

The adoption of AI will also likely impact employment, particularly in customer-facing roles like insurance agents and brokers. In a country where insurance penetration has relied heavily on human intermediaries, what happens when AI begins to take over? Platforms like BCG’s AI-powered distribution model, which enhances agent productivity through data-driven insights, can seem like a win-win. However, their role diminishes significantly when agents become facilitators of AI-driven decisions.

India’s insurance sector employs thousands of intermediaries, many of whom have built their careers on traditional selling policy models. As AI assumes a more prominent role, there’s a growing concern that the need for human agents will decline. While this shift may not happen overnight, it raises questions about job displacement and worker retraining.

Regulatory and Ethical Hurdles

AI’s integration into the insurance ecosystem also brings many regulatory and ethical challenges to the forefront. For AI to be trusted, it must be transparent. This is particularly relevant in India, where regulatory frameworks like the IRDAI are still catching up to the pace of technological change. There are already concerns about how AI algorithms make decisions—particularly in areas like claims settlements, where the consequences of denial can be life-altering.

The Indian government’s Digital India initiative and the push toward greater data privacy, as seen in the Personal Data Protection Bill, will be crucial in setting the tone for how AI is regulated in insurance. Insurers must navigate a fine line between harnessing the power of AI and ensuring that consumer data is handled ethically and responsibly.

A Balancing Act

As AI revolutionises the insurance industry, India stands at a crossroads. On the one hand, we can potentially create a more efficient, personalised, and cost-effective insurance ecosystem. Conversely, we risk deepening the divide between the connected and the disconnected, the tech-savvy urbanites, and the underserved rural populations.

The winners in this AI-driven revolution are clear: large insurers and tech-enabled urban consumers. But for AI to truly democratise insurance in India, insurers, regulators, and policymakers must work together to ensure that the benefits of AI reach the underserved. This will require technological investment and a focus on inclusivity, fairness, and ethics.

Ultimately, AI’s role in India’s insurance revolution isn’t just about who wins and who loses—it’s about finding a balance that benefits all.

(Dr. K. Madan Gopal is an advisor with the Public Health Administration Division at the National Health Systems Resource Centre (NHSRC) – MoHFW, Government of India, specialising in public health reforms and resilient health systems. Dr. K. S. Uplabdh Gopal is an Associate Fellow at the Observer Research Foundation, focusing on health policy.)

Views are personal and do not represent the stand of this publication.