Algorithms, Artificial Intelligence, and Insurance – How to Know You’re Getting the Best Deal

You probably already understand that where you live has an effect on your insurance rates. For example, it usually costs more to insure a car in a big city than it does in a small town – the risk is lower because there are less cars, people, and traffic. But

 how do insurance companies assess other risk factors that go into insurance prices? 

The answer is with the help of algorithms and artificial intelligence (AI). 

Algorithms and AI help define insurance prices by analyzing the amount of risk that surrounds certain areas and demographics. While the data is collected in a way that is intrinsically fair, there is a moral factor behind risk profiling that is often overlooked. For this reason, it’s important to carefully choose your insurance policies with the help of an insurance broker rather than dealing with insurance companies directly.

Getting the best insurance policy for your needs

When you are shopping around for insurance policies, there are three big things that you should understand:
1. Algorithms and artificial intelligence
2. How algorithms and AI determine insurance prices
3. How insurance brokers can help 

Algorithms and Artificial Intelligence

Algorithms play a huge part in our lives today. If you have ever used a computer, smart phone, smart watch, tablet… you get the picture – you have been subjected to the use of algorithms.

Algorithms are used to collect data in a way that is unambiguous, which means it doesn’t have any bias or discrimination toward the data it collects and they methods of data collection. Algorithms are used to make artificial intelligence, well, intelligent! 

With the help of algorithms, AI can learn about users by their location, keystrokes, shopping habits, demographic information, and so on and so forth. Algorithms were created to efficiently collect data on users to that companies know what their audience looks like and target them accordingly.

Back in the day, the data that companies needed to reach their customer base was largely collected though information that was voluntarily provided by the consumer. Today, AI is able to closely monitor everything that makes people unique and use that to form assumption about people at large. 

This collection and interpretation of information can easily be related to the Law of Large Numbers. Statically speaking, the larger the sample size, the closer the mean gets to the average of the population as a whole. Basically, if there is enough data to support a certain attribute, that attribute is assigned to a population as the assumption of their behavior.

How do algorithms and AI affect insurance?

Great question!

In order to answer, let’s go back to the summer of 1967. Although it was 53 years ago, the social and political climate was similar to that of today: race riots and the clashing of police and Black people in America – namely in lower income urban neighborhoods. 

After the dust settled (if it ever really did) the neighborhoods fell into disrepair and insurance companies “redlined” them. Sound familiar?

Insurance companies would pull up a map of the city and literally draw a red line around the areas that they deemed too “risky” to insure – the areas that were largely comprised of poor minorities. People in these areas were denied financial opportunity and redlining ultimately created pockets of financial disparity throughout the United States.

Once it caught on that redlining was bad for the people who were enclosed in the red lines, there were laws put into place to discourage it, but it never really stopped. Redlining continued but was disguised as “statistical risk.” 

When an insurance company can say that they are letting statistics speak for their decisions, they effectively remove any moral responsibility they have in making said decision because morals are not a factor. The decision was made on a purely mathematical, technical, and market-researched analysis that is inherently both fair and accurate.

Now let’s take it to the present day. These statistics have paved the way for insurance companies to use the information that they collect by way of algorithms and AI and set premium prices accordingly. This is true both for areas at large and individuals.

When insurance companies assess the risk that they’re taking as it pertains to a new insurance member, they take a look at the statistics as they relate to both the area that the prospective member lives in AND that person’s specific demographic. With this method, it’s completely possible for someone with a clean record to be subject to higher insurance prices because they live in high risk (poor and minority) areas and/or are a member of a high-risk population (person of color). Insurance companies are able to deny that these statistics are discriminatory and unfair simply because they are accurate.

How insurance brokers can help

The practice of determining risk and therefore pricing is so deeply ingrained into the system that it’s nearly impossible for people who are searching for insurance to know better or fight back. That’s where insurance brokers like us come into play.

Here are four reasons you should use an insurance broker:

1. We work for YOU – not for a major insurance company
When you go directly to an insurance company, an agent is only able to search through a database that includes their own products and services. When you go through an insurance broker that has the ability to search through a number of insurance companies at once, you’ll be able to find a plan and price that really sounds perfect for you.

2. Brokers are knowledgeable and experienced
Unlike insurance agents who are tied to the company that they work for insurance brokers have a vast knowledge of every insurance company in your area. As such, they have been able to get much more experience dealing with different types of policies, claims, and customers. Here at BundleBee, we have 35-years of experience in the insurance industry so you can rest assured that we will use all of our industry knowledge to get you the best price possible.

Throughout the years, the most important thing we have learned is that insurance is not one-size-fits all. That’s why we really take the time to get to know our customers! We enjoy being on a first-name basis with everyone who walks in our door. As a family-owned and operated company, our intention is not to simply sell you a product, we are looking to protect you and your family because that’s what we would do for each other.

3. It’s easy!
If you’ve ever searched around on the internet for a quote, you know what a pain it can be. If you haven’t, we will make it so you never have to! Don’t worry about comparing quotes and policies and being hassled by agents for the next few weeks via phone and email. Insurance brokers will do all of the work for you! All you have to do is tell us what you need, and we’ll do the rest.

4. Risk assessment and elimination
As experienced insurance professionals, a broker knows all about the risks that factor into insurance pricing. When you choose to go with a broker, they will help you identify the risk pools that you’re in and let you know what you can do to either eliminate or minimize your risk. It’s our way of combating the algorithms!

Call BundleBee today!
We’re eager to meet you and hear about your needs as far as insurance goes. Trust us when we say that we wouldn’t be in this industry for two generations and almost four decades if we didn’t really love what we do! If you’re feeling the effects of redlining in your area or just need a new insurance policy, stop into our location at 11125 La Quinta Place, Suite A
El Paso TX, 79936 or call 888-905-2039! Talk to you soon!

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