How Artificial Intelligence is Solving the Challenges of Premium Leakage

Artificial intelligence (AI) is a powerful tool for solving the challenges of premium leakage

Insurance fraud is a familiar challenge, with most insurers already making investments in claims fraud detection technology. Now, new interest is gathering for technology to detect premium leakage and fraud at the point of underwriting, with AI emerging as a powerful solution. 

"Artificial intelligence has the potential to transform the way that insurers understand and pursue premium leakage. The speed, power, and accuracy of AI allows underwriters to identify the misrepresentations that cause premium leakage at point of sale or point of quote – before the policy is written."

Premium leakage is costly, and historic detection methods come with risk

Historic hesitancy by insurers to deploy technology to detect premium leakage is understandable. Claims fraud represents tangible bad acting, costing insurers and policyholders an estimated $40 billion USD. Comparatively, premium leakage may seem only a small cost with an otherwise honest policyholder, essentially a cost of doing business. 

But recently, there has been a growing awareness that premium leakage cannot be ignored, as even a small discrepancy can add up when multiplied across the estimated 35 million US adults who misrepresent in their applications. According to research from Aite-Novarica, the aggregate misrepresentation means US insurers lose up to 14% of direct written premiums (DWP) in the form of premium leakage.

At the same time, tackling premium leakage and fraud at the point of underwriting comes with its own risks, particularly when it could slow down the new policy process for honest applicants. Add to this that applying premium adjustments at renewal increases the likelihood and cost of churn, and insurers find themselves with difficult options.

Download the report to learn how AI is addressing these challenges

Topics covered include:

• The impact of premium leakage as a lost opportunity for revenue
• How a 25% reduction in leakage could yield a 2-point improvement to the combined ratio
• The three major challenges of stopping premium leakage
• How AI is able to excel at overcoming the challenges of dealing with premium leakage