Artificial Intelligence (AI) is not just about making insurance companies more efficient—increasingly, it’s about profitability.
For consumers, that means understanding both the benefits and risks, and how these changes can affect the protection they receive and the price they pay for coverage.
Why Do Insurers Adopt AI?
From the insurer’s point of view, AI is a technological tool that helps them process applications faster, assess risks with more precision, and cut costs.
By automating much of the underwriting process, insurance companies can approve policies faster and spend less money on manual work. This leads directly to higher profits.
AI also allows insurers to analyze huge amounts of data—such as your driving habits, your location, your credit score, and even information from connected devices like smart cars and home sensors—to build a detailed risk profile of every applicant.
This means the insurance company can price policies based less on group averages and more on targeted, individual predictions.
In some cases, safe drivers or those with low-risk behaviors may see their premiums fall, but people with certain habits or living in specific areas may see rates rise. This sometimes leads to more personalized pricing, but also presents risks for unfair or discriminatory outcomes.
How AI Impacts Consumers: The Hidden Risks
• Dynamic pricing and potential for unfair rate hikes: AI’s ability to process data in real-time gives insurers the power to adjust rates more frequently.
If a connected device or mobile app tracks that a driver frequently visits “high-risk” neighborhoods, the system may automatically raise rates—even if there’s no actual increase in risk. Consumers may not even be aware of why their costs go up.
• Risk of exclusion or mis-selling: AI can use dozens or hundreds of data sources—including some with historical biases—with little human oversight. If the system finds patterns that don’t actually signal true risk, some individuals could be unfairly denied coverage or sold products unsuited for their actual needs. These risks are especially high in communities with less access to financial services or digital literacy.
• Transparency issues: Since many AI algorithms are “black boxes,” it’s harder for consumers to know why they were denied coverage or were charged a certain premium. If a decision is based on factors that seem irrelevant or unfair, it can be difficult to challenge or correct the outcome.
• Data privacy concerns: AI systems often pull in data from sources consumers didn’t even realize were relevant—online behaviors, smart device activity, and social media. This raises concerns about consent, data security, and how personal information is being used and stored.
Consumer Protections and What to Watch For
• Regulatory progress: Advocacy groups and regulators like the NAIC (National Association of Insurance Commissioners) have recently called for transparency, fairness, and accountability in how AI systems are deployed.
The goal is to make sure insurance companies aren’t using AI to exclude, discriminate, or mislead consumers.
• Fairness standards: Some regulations require that companies explain their pricing models and have human review available for appeals. Insurers should not use factors that indirectly discriminate on race, gender, or location.
However, regulators and advocacy organizations warn that current laws may not fully address new risks created by AI—so consumer vigilance is essential.
• Tips for consumers: When shopping for insurance, ask questions about what data is used for pricing, insist on explanations for rate decisions, and check for oversight or appeals processes.
If a premium changes suddenly, ask the company to clarify what triggered the adjustment. Review privacy policies and opt out of sharing extra data whenever possible.
How Advocacy Organizations Are Responding
Consumer advocacy services are:
• Pushing for better regulation and enforcement—working with lawmakers to strengthen laws so AI cannot be used to unfairly exclude or penalize people for factors beyond their control.
• Educating the public—helping consumers understand their rights around data privacy, what kinds of data insurers can legally use, and how to challenge unfair decisions.
• Monitoring trends for bias—helping identify patterns where AI may be leading to discriminatory pricing or exclusion and working to bring attention to those cases.
• Encouraging insurers transparency—advocating for rule changes that require companies to explain their decisions and give consumers a way to review or appeal automated outcomes.
Real-World Example: Auto Insurance and AI
Suppose an auto insurance company uses telematics to track your driving. If you brake hard or drive late at night, the AI might flag you as higher risk and raise your premium—even if you’re not a dangerous driver.
These systems may also factor in destinations: driving through certain neighborhoods could trigger rate hikes due to “risk profiling”. Consumers need clarity about what is being measured and how it affects pricing.
Advocacy services help people ask the right questions, challenge unfair rate changes, and demand better oversight so insurance companies aren’t profiting at the consumer’s expense.
What Can You Do?
As a consumer, we recommend:
• Always review how your data is being used. If you’re asked to install an app or device, request access to the information it collects and knows who gets it.
• Challenge unexplained rate changes. Request written explanations if your premium jumps unexpectedly and ask for human review.
• Watch for signs of bias or exclusion, especially if you feel that demographic or geographic factors—not your actual behavior—are influencing pricing.
• Support organizations and lawmakers pushing for stronger protections and accountability in AI-driven insurance.
• When comparing insurance products, favor companies that demonstrate transparency, offer appeals for automated decisions and are compliant with emerging regulatory standards.
By understanding how AI works in insurance—and staying alert to its risks—consumers can make better choices, demand fairer treatment, and push the industry toward transparency and protection.