Artificial Intelligence And Insurance: Why Uncovering And Preventing Bias Is Critical

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The introduction of artificial intelligence (AI) into the insurance industry is transformative, heralding a new era marked by improved efficiency, accuracy and personalization. However, with this technological shift comes a significant yet often overlooked concern—AI bias. This issue is particularly pertinent in the life insurance sector, where it is crucial to understand and address AI bias.

Understanding AI Bias
AI bias occurs when an AI system’s decisions are unfairly influenced by prejudices. Prejudices can shape the data from which the AI system learns or drive programming choices that favor one protected class over another.

AI systems learn and predict based on data. Unfortunately, if this data represents societal prejudices and bias, AI can inadvertently continue such bias. Historical data on life insurance can often reflect such biases. Certain demographics, such as people from specific minority communities or those within lower income brackets, may have been unfairly categorized as high-risk applicants based on pre-existing socioeconomic disparities and systemic prejudices.

In practical terms, these unfair high-risk labels could lead to disproportionately steep insurance premiums, or even denial of coverage, which has profound implications for these individuals. Without this understanding, an AI system might continue to unfairly categorize these groups as elevated risk based on the historical bias embedded within the data.

The Domino Effect of AI Bias in Life Insurance
Life insurance, at its core, is designed to provide a financial safety net for individuals and their families in the face of life’s unpredictability. It is a mechanism to ensure financial stability and peace of mind, enabling individuals to safeguard their loved ones against potential future adversities. As a result, the principles of fairness, equity, and impartial risk assessment are not just ideals, but foundational tenets that underpin the entire life insurance industry.

The presence of AI bias directly threatens these core principles. It introduces an unjust imbalance into the system, with certain societal groups shouldering a disproportionate burden. The problem is twofold. First, the individuals directly affected by the bias bear an increased financial strain due to higher premiums or a lack of coverage. Second, the insurance industry itself faces a risk in its fundamental mission of providing equitable access to financial security.

Consequently, AI bias not only creates an unequal playing field but also undermines the societal role of life insurance as a safeguard against life’s uncertainties. This impact of bias underscores why a committed, proactive approach toward recognizing and addressing AI bias is not just recommended, but essential.

Why AI Bias Matters to Regulators
It’s also paramount to address AI bias in the context of regulatory compliance. As AI takes on a growing role in the insurance industry, the regulatory scrutiny around it intensifies. Regulatory bodies are now demanding more transparency and accountability in AI’s decision-making processes. Without robust bias mitigation strategies, life insurers risk breaching these regulations, leading to potential legal penalties and financial repercussions.

Understanding Intended and Unintended Bias
Recognizing and managing AI bias, both deliberate (intended) and accidental (unintended), is the key. These biases have significant implications, especially in sectors like life insurance that greatly influence people’s lives.

To illustrate this, consider an insurance company that utilizes an AI system to sell new life insurance policies. This AI system considers various factors, including gender, to determine premium rates for these policies. However, if the company uses a higher representation of males in the data used to train the AI model—also known as training data—without adjusting for the gender imbalance, it becomes an instance of intended bias. The biased training data, with a higher representation of male policyholders, skews the AI system’s recommendations, resulting in higher premiums being recommended for females. This biased outcome is not reflective of the individual risk profiles or needs of female policyholders and can lead to unfair treatment. Such intentional bias can attract regulatory scrutiny, as it can be perceived as mis-selling or discriminatory practices.

Unintended bias can arise when an AI system is trained primarily on a specific type of data and scaled to multiple groups or when model features act as proxy bias. Suppose a company uses this AI system to generate personalized product recommendations for both urban and rural customers but only used data from urban ZIP codes. If the system lacks diverse data representing rural customers, it may inaccurately classify their preferences and needs. As a result, rural customers might receive recommendations that do not align with their actual needs, leading to decreased sales and customer dissatisfaction. This unintentional bias could also damage the company’s reputation and prompt regulatory scrutiny. To mitigate these biases, a comprehensive approach is crucial, including gathering sufficient and representative data from both urban and rural customers to ensure accurate recommendations for all customer segments.

Mitigating AI Bias
Once insurance companies are aware of AI bias, they can take steps to mitigate that bias. This involves proactive steps to ensure representative and fair data, regular audits, the use of explainable AI and robust bias mitigation strategies.

First, companies must ensure they are using diverse and representative data for training AI systems. If certain demographics or regions are underrepresented, the company should undertake additional data collection efforts or employ alternative strategies like data augmentation or synthetic data generation.

Second, regular audits of AI systems should be conducted to ensure they are functioning as intended and not producing biased outcomes. This auditing process involves testing the AI system under different scenarios and ensuring it performs equitably across diverse demographics and situations.

Third, investment in explainable AI, which enables human understanding and interpretation of AI decisions, is vital. If a decision appears biased, the transparency provided by explainable AI can help in identifying the cause and correcting it.

Fourth, companies should establish robust bias mitigation strategies. This includes setting clear guidelines for handling intended bias, continuously monitoring for unintended bias, and having a responsive action plan if bias is detected.

How the Life Insurance Industry Can Navigate AI Bias
Understanding some key techniques used for identifying and mitigating bias in AI can offer insight into how the life insurance industry can navigate this complex issue. Here are a few examples:

  1. Fairness through Unawareness: This technique essentially means “what an AI system doesn’t know, it can’t misuse.” Here, potentially sensitive characteristics like gender, race, or socioeconomic status are purposely excluded from the data that the AI system uses. By doing this, we are trying to prevent the AI system from making biased decisions based on these attributes. However, this approach may not always work, especially if there are other variables indirectly linked to the sensitive attributes.
  2. Fairness through Awareness: This is the opposite of the previous technique, which involves consciously including sensitive attributes in the AI’s data but instructing the system to ensure fair treatment across all groups. For instance, the AI system might be programmed to ensure that people from various income brackets have equal access to life insurance policies, even if their income levels were part of the data the system learned from.
  3. Counterfactual Fairness: This approach involves the use of “what-if” scenarios to test the AI system’s decisions for bias. Basically, the system’s decisions are evaluated based on hypothetical situations where a particular attribute is changed. For example, if changing a person’s residential area in a risk assessment scenario significantly alters the risk prediction, it may indicate a bias in the AI system that needs to be addressed.
  4. Adversarial Debiasing: In this method, a second AI model (adversary) is developed to challenge the primary model. The second model’s job is to predict sensitive attributes based on the primary model’s predictions. If the adversary can accurately predict these attributes, it means the primary model’s decisions are likely influenced by those attributes, indicating bias. The primary model is then adjusted to make it harder for the adversary to make these predictions, helping to reduce the bias in its decisions.

Overall, the significance of addressing AI bias in the life insurance industry cannot be overstated. As the industry becomes increasingly reliant on AI to streamline processes and enhance decision-making, it is crucial to ensure these systems do not perpetuate societal biases or unfair practices.

Bias in AI systems can lead to detrimental effects on customers, particularly marginalized groups who may be unfairly categorized as substantial risk based on outdated or skewed data. This undermines the industry’s foundational principles of fairness, equity, and the commitment to provide a financial safety net to all segments of society.

Regulatory bodies are intensifying their scrutiny, requiring greater transparency and accountability in AI-based processes. Companies that do not actively mitigate AI bias might face potential legal and financial repercussions, damaging their reputation and customer trust.

Implementing techniques that can statistically quantify the bias can help insurers identify and rectify biases in their AI systems. However, technical fixes alone are not enough. There needs to be an organizational commitment to ensure that AI systems reflect and uphold the principles of equity and fairness that the industry is built upon.

Tackling AI bias is not just an ethical imperative for the life insurance industry but also a strategic necessity for building a sustainable, inclusive, and trusted industry in the age of AI.

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Varun Mandalapu is a highly accomplished senior data scientist at Mutual of Omaha with a wealth of experience in the field of artificial intelligence. He earned a Ph.D. in Information Systems from the University of Maryland (Baltimore County), where he specialized in AI and knowledge management. He has also published multiple original research articles in top-rated AI conferences and journals. Throughout his career, he has built an impressive track record of success in leveraging data and advanced AI to drive business outcomes and improve customer experience.

At Mutual of Omaha, Mandalapu plays a critical role in shaping the future of data science in insurance. He is responsible for leading the development of innovative data science solutions that enable the company to deliver exceptional customer experiences and stay ahead of the competition. Varun’s groundbreaking work at Mutual of Omaha also includes the development of tools for identifying bias in AI models. Additionally, Mandalapu also leads the company’s early career data scientists by managing the rotational Associate Data Science Program, which aims to develop the next generation of data science talent.