How is Artificial Intelligence impacting insurance

Whether you like it or not, artificial intelligence (AI) is here, and it's transforming the insurance industry. From enhancing accuracy levels to streamlining customer experiences, artificial intelligence encompasses several technologies, such as machine learning and natural language processing, that make these industry advancements possible.

Like many countries worldwide, Canada is at the forefront of AI innovation, with hubs in Montreal, Toronto, and Vancouver leading the charge. Statistics Canada reports that in 2024, 10.9% of insurance companies in Canada began implementing AI technologies into their business practices in the form of chatbots and virtual customer service representatives. For example, Manulife utilizes AI to support risk assessment and claims processing, while Intact employs AI tools to detect fraud and accelerate claims.

As artificial intelligence continues to evolve, its role in the Canadian insurance industry will follow suit. While this will undoubtedly offer innovative solutions, AI in insurance also raises ethical and regulatory concerns.

What is generative AI in insurance?

AI in insurance refers to the use of advanced technologies to automate and enhance certain aspects of the insurance process. This can include:

Predictive analytics

Allows insurance professionals to perform more accurate risk assessments by analyzing data patterns, which in turn leads to more precise underwriting processes and insurance premiums. For example, AI can predict the likelihood of a customer filing a claim based on their driving habits or other behaviours, depending on what type of insurance they're looking to purchase. This enhanced risk estimation can calculate their insurance costs more efficiently for various insurance products.

Automation

Reduces routine tasks to increase efficiency during claims processing. For example, tasks like processing documents, approving insurance claims or updating customer records can be performed more efficiently with minimal errors or human intervention.

Natural language processing

Used to power chatbots and virtual assistants, which provide customers with 24/7 support. This reduces wait times while increasing customer satisfaction. Ultimately, these new technologies will lead to more personalized service and tailored coverage.

Application of AI technologies across the insurance industry

From underwriting to claims, customer service, and risk mitigation, generative AI models are transforming every stage of the insurance lifecycle. Canadian insurance companies are leaning into the transformative power of AI tools to improve, enhance, and deliver better customer service. Here's a closer look at how insurance carriers in Canada are adopting these new technologies:

Underwriting Process: improved risk assessment

Generative AI significantly improves the underwriting process to allow faster and more accurate risk assessments on customers. Rather than relying solely on historical data, AI quickly analyzes large datasets, such as social trends, weather patterns, driving habits, and more. Therefore, empowering insurance companies to better assess risk in real time and price policies accordingly.

As we briefly mentioned, Manulife uses AI applications during its underwriting, and has been since 2018. This has helped the insurance carrier reduce approval times on life insurance policies, which improves the customer experience.

Claims management & processing: efficiency & fraud detection

When it comes to claims management, there are a lot of mundane, routine tasks that need to be performed. One of the most impactful uses of generative AI is removing the need for insurance professionals to perform these tasks manually. For example, by automating document reviews. AI can reduce turnaround times, improve accuracy, and detect red flags that could lead to fraud detection.

For example, since around 2017, Intact Insurance has been using AI adoption, specifically, machine learning, to flag suspicious claims that stand out against historic data in their systems. This ultimately reduces the frequency of payouts for false claims and makes premiums more affordable.

Customer interactions & customer experience

One of the most obvious uses of AI in the insurance industry is in the customer service department. With the rise of chatbots and virtual assistants, insurance firms are able to use natural language processing to handle hundreds to thousands of customer interactions a day, which substantially outweighs the capabilities of actual agents.

Whether it be instant insurance quotes, answering questions about policy details, or filing claims, chatbots can improve response times, resulting in better customer service scores. Additionally, with 24/7 availability, these tools also help insurance companies serve customers across Canada without any delays.

Risk mitigation: Real-Time data analysis & telematics

Beyond typical services, generative AI assists insurers in mitigating risk. For example, telematics devices in vehicle insurance monitor driving behaviours such as speed, braking, what time of day you're driving, and more. AI then uses this information to reward safe drivers with discounts on their premiums or alert them when drivers are exhibiting dangerous driving habits on the road.

Similarly, in the home insurance industry, smart devices like water leak sensors can trigger a warning that notifies homeowners of potential risk in their home, reducing the amount of water damage that occurs. This, ultimately, can reduce the severity and frequency of home insurance claims.

Benefits of Artificial Intelligence (AI) tools for Canadian insurance customers

Generative AI isn't just about improving how the insurance sector operates; it's about providing meaningful benefits to Canadian policyholders. Here are some of the benefits that everyday Canadians are benefiting from generative AI in the insurance sector:

Faster claims processing

One of the main benefits of implementing artificial intelligence in the insurance industry is faster claims processing and resolution. Decision-making in traditional claims processes can take weeks to complete. However, with generative AI, it can streamline the process dramatically.

For example, existing technologies using generative AI can analyze dash cam footage and vehicle telematics to assess damage, determine who's at fault, and approve insurance reimbursements more efficiently. In the end, policyholders can expect to get back on the road in no time with minimal disruptions.

Personalized service and insurance policies

Generative AI in the insurance industry can also be used to provide even more tailored coverage based on individual risk profiles. For example, safe drivers can receive discounts based on telematics data that tracks braking patterns, speed, and the time of day they are travelling.

On the other hand, when it comes to health and life insurance, generative AI can use machine learning as a strategic approach to risk modelling, which can help insurers price premiums according to a policyholder's actual health data collected by wearable devices, rather than third-party data sources that help inform potential risks.

Improved customer expectations & service

Virtual assistants powered by AI and chatbots are available 24 hours a day, seven days a week, to answer questions, modify current policies, and provide quotes to potential customers. This decreases the waiting period and increases access, especially for individuals in rural areas or in underserved communities.

Lower insurance premiums & reduce fraudulent claims

According to the Insurance Bureau of Canada, insurance fraud costs Canadians over $1 billion a year in extra insurance premiums. With the help of generative AI, insurers are able to detect suspicious insurance claims early on, which in turn helps reduce losses. The result? More competitive product offerings and rates from Canadian insurers moving forward.

Risks and ethical considerations

Although generative AI offers substantial benefits throughout the insurance industry and other industries in Canada, there are concerns about data privacy, job displacement, and the inherent biases of algorithms implemented in algorithms. We analyze each concern in detail below:

Data privacy

In Canada, the Personal Information Protection and Electronic Documents Act (PIPEDA) governs how data is handled by organizations to ensure privacy. The use of AI involves collecting and analyzing personal data, which needs to follow the privacy measures governed by PIPEDA. However, as of 2025, there are no specific policies within the act that mention the use of generative AI, which moving forward would be needed.

Job displacement

According to Statistics Canada, 91.2% of finance and insurance businesses reported no change in employment levels after implementing AI into their business strategy. However, job displacement concerns among Canadians remain high.

Algorithm bias

According to the Canadian Institute of Actuaries, AI algorithms are built on formulas that aim at improving prediction accuracy. However, because they can't reason for algorithms often disregard the drawback of impartiality and could provide biased predictions. These biased predictions can often be the result of inherent bias in the data itself, which can negatively impact marginalized communities and fair access to affordable coverage.

The future of AI in Canadian insurance

For many organizations ready to embrace change, the future of AI in the insurance industry in Canada is expected to make further rapid advances with the adoption of emerging technologies meant to provide enhanced customer experiences and other services for customers. What follows is a detailed discussion of AI in Canadian insurance:

Generative AI

Unlike traditional AI, which focuses on pattern recognition, generative AI can create new, synthetic data based on existing patterns. So, why does this matter? Essentially, generative AI can be useful in testing scenarios for risk modeling for customers looking to purchase insurance, but who have unique or high-risk backgrounds.

The Canadian Institute of Actuaries explains that generative AI can help better understand a wider range of possible outcomes and design more personalized policies for customers. For example, they can test events like major floods, wildfires, or certain collisions, even when real-world data is limited.

Explainable AI

Explainable AI logs why and how decision-making occurred. For example, if an AI system is in charge of determining whether to approve a claim, it'll be important for insurers to understand why the AI made that choice. Explainable AI can then be used to make these decisions clear and easy to understand. In turn, it helps build trust between insurers and their customers.

Blockchain AI integration

A study released by the International Journal of Intelligent Systems and Applications in Engineering takes a look at the use of blockchain technology and algorithms for machine learning to detect suspicious trends and abnormalities in health insurance claims data.

Litslink claims that blockchain technology and AI can automate insurance company processes and increase fraud detection, resulting in a 30% reduction in operating expenses. This suggests that generative AI and blockchain integration can help insurers speed up the claims process for customers.

The bottom line

AI is changing the insurance industry by offering more personalized coverage, customer service, and enhanced efficiency. Although there are challenges that come with insurers implementing AI in their business practices, such as data privacy, algorithm biases, and ethical job displacement, regulations like PIPEDA do require businesses to adhere to their standards.

Staying on top of emerging trends and embracing AI responsibly can continue to help the Canadian insurance industry grow and adapt accordingly to ensure policyholders trust their insurers to keep them safe.

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