The (un)limited use of AI segmentation in the insurance sector
In theory, under the premise of freedom of will, insurers in Belgium are permitted to employ artificial intelligence (‘AI’) and big data analytics for segmentation purposes, enabling them to determine the ‘claims probability’ (i.e., the likelihood and severity of potential claims) for each prospective policyholder. This analytical approach empowers insurers to determine whether or not they should underwrite a risk, and if so, on what terms. A more extensive pool of policyholder data may increase the accuracy of the assessment of claim probability and surpasses the information asymmetry between the policyholder and insurer.
Although the implementation of AI and big data benefits insurers, pervasive segmentation through AI has some negative implications and could entail serious ramifications for policyholders if their risk is incorrectly calculated. In Belgium, the current insurance regulation does contain some existing restrictions that limit the freedom of insurers to use AI; nevertheless, these provisions fall short of protecting policyholders from inaccuracies in their risk assessments and thus from receiving incorrect premiums or conditions.