You’ve all probably heard the phrase when a journalists “mails in” a column. Well, today, I am going one better. I am auto generating a post.
That’s right, if you’re not familiar with Open AI‘s new chatbot tool, ChatGPT, you should be. It has the power to change insurance customer service going forward and even potentially underwriting.
Rather than me trying to explain how it works, I thought it would be best to let it explain itself. So here are ten questions I asked it, along with the answers. You can ask the questions yourself and see what answers you get!
#1 Explaining Elevated Auto Insurance Claims
Q: Write a news article explaining the effect of higher used car pricing and increased bodily injury litigation on auto insurer earnings.
A: A recent uptick in used car prices and a surge in bodily injury litigation have had a significant impact on the earnings of auto insurers.
The used car market has seen an increase in prices due to a record-low supply of vehicles, as well as a rise in demand. According to a report from Cox Automotive, used vehicle prices increased by 8.2 percent in April as compared to the same period last year. This has resulted in higher costs for auto insurers, who now have to pay more to replace damaged vehicles.
In addition, bodily injury litigation has also become more expensive for auto insurers. This is due in part to the increased cost of medical care, as well as the increased use of expert witnesses and other legal costs associated with these cases.
The combination of these two factors has led to a decrease in auto insurer earnings. According to an analysis by the Insurance Information Institute, auto insurers reported an operating loss of $6.2 billion in the first quarter of 2021, compared to a profit of $7.1 billion during the same period last year.
This decrease in earnings has led some insurers to raise their prices in order to compensate for the higher costs. While this may help to improve the bottom line in the short term, it could lead to a decrease in demand for auto insurance in the long run.
The rise in used car prices and bodily injury litigation is likely to continue for the foreseeable future, so it is important for insurers to be prepared for the increased costs. They should look for ways to reduce expenses and improve efficiency in order to remain profitable in the long run.
Grade: A+. Note, I didn’t prompt that these trends were negative. It had to figure that out. The only small nit is it focused on last year and not this year, but exceptional analysis.
#2: Comparing Cat Reinsurance To ILS
Q: Provide a pro vs. con analysis of insuring catastrophe risk as a reinsurer vs. an index linked security
A: Pros of insuring catastrophe risk as a reinsurer:
- Reinsurance provides direct protection to the insured and provides them with a more comprehensive risk management solution.
- Reinsurance is a form of risk transfer, which allows the insured to transfer the risk to a third party and free up capital for other uses.
- Reinsurance can provide a more cost-effective solution than index-linked securities.
- Reinsurance policies can be tailored to the needs of the insured and provide greater flexibility than index-linked securities.
Cons of insuring catastrophe risk as a reinsurer:
- Reinsurance is a complex process and requires significant resources to manage and monitor.
- Reinsurance is dependent on the reinsurer’s financial stability and the insured is exposed to financial risk if the reinsurer is unable to pay out claims.
- Reinsurance is subject to regulatory oversight, which can add to the costs and complexity of the process.
- Reinsurance can be expensive, especially when the risk of a catastrophe is high.
Grade: C+. It did a good job on the reinsurance side (except that traditional reinsurance is typically not more cost effective, though it is, as noted, more flexible than ILS). On the other hand, it didn’t really seem to know what ILS was as, for example, it didn’t address collateralization or the risk of capital being tied up after a loss.
#3: Elevated D&O Claims
Q: Explain why insurers may face increased D&O claims from clients if the economy enters a recession.
A: Insurers may face increased D&O claims from clients if the economy enters a recession due to the increased risk of financial losses. As the economy weakens, companies may be more likely to take risks in order to stay afloat, which can lead to mismanagement, fraud and other wrongful acts. When these acts lead to losses, companies may look to their D&O insurer to provide coverage for the losses.
Additionally, if the company’s stock value is affected by the downturn, shareholders may file suit against the company and its officers for their losses. This may lead to an increase in D&O claims.
Grade: B. Not bad, though I would have preferred a bit more focus on recessions exposing pre-existing bad behavior rather than just causing it.
#4: Cyber Insurance Profitability
Q: Explain the reasons why cyber insurance is unlikely to produce satisfactory financial returns for underwriters.
A:
- Low Probability and High Severity of Losses: Cyber insurance claims are usually high in severity, meaning that a single loss can be very costly, but the probability of an event occurring is very low. This creates a situation where the cost of claims outweighs the amount of premiums collected, making it difficult for the underwriter to generate a satisfactory financial return.
- Complexity of Coverage: Cyber insurance policies are complex, and require a thorough understanding of the risks associated with cyber events. This can make it difficult to accurately price and assess risk, making it difficult for the underwriter to generate a satisfactory financial return.
- Lack of Data: The cyber insurance industry is still relatively new, meaning there is a lack of data available to assess risk. Without reliable data, underwriters are unable to accurately price and assess risk, making it difficult to generate a satisfactory financial return.
- Lack of Standardization: There is still a lack of standardization in the cyber insurance industry, meaning that policies can vary greatly from one insurer to another. This makes it difficult for underwriters to accurately price and assess risk, making it difficult to generate a satisfactory financial return.
Grade: A-. Very nicely done. The first point was a little shaky, but the rest did a pretty good job of outlining the challenges.
#5: Solving Florida Home Insurance
Q: Suggest reforms to make homeowners insurance more affordable in Florida
A:
- Increase the availability of public subsidies to help offset the cost of homeowners insurance premiums.
- Require insurers to offer more customized coverage options to better meet the needs of homeowners.
- Increase competition in the insurance market by allowing more companies to offer homeowners insurance in Florida.
- Implement a rate-setting system to ensure that the cost of insurance premiums remains stable and fair.
- Provide incentives for homeowners to take proactive steps to protect their homes from potential damage, such as storm shutters and other protective measures.
- Create a reinsurance fund to help cover the costs of major weather events and other disasters.
- Develop a program to help low-income families purchase homeowners insurance.
- Allow for the use of technology to streamline the process of buying and managing homeowners insurance.
- Implement better consumer education initiatives to help homeowners better understand their insurance options and coverage needs.
Grade: B+. Didn’t mention the need for legal reform, but the suggestions made are not unreasonable at all.
#6: Explaining Insuretech Struggles
Q: Explain why insurtechs underestimated the challenges to building a successful business.
A: Insurtechs underestimated the challenges to building a successful business because they often focused on technology-driven solutions without fully considering the complexity of the insurance industry.
Insurtechs often lacked the expertise to understand the nuances of the insurance market, the regulatory environment, and the intricacies of customer relationships, which are all critical to developing successful products and services.
Additionally, they often lacked the resources to develop comprehensive business strategies and marketing plans, which are necessary to build a sustainable business.
Finally, they underestimated the importance of partnerships with established insurers, which are often key to success in the insurance industry.
Grade: B+. Pretty good. It left out the reckless pursuit of top line growth, but overall a very solid effort.
#7: The Tortoise and the Hare
Q: Explain the concept of the insuretech tortoise and hare.
A: The insuretech tortoise and hare is a metaphor used to describe the two different approaches to insuretech. The hare is representative of the highly visible, fast-paced startups that have recently entered the insuretech space, while the tortoise stands for the more traditional, slower-paced incumbents that have been in the industry for many years.
The hares have the advantage of being able to quickly adapt to new technologies and trends, but the tortoises have the advantage of a deep understanding of the industry and existing customer relationships. Ultimately, the insuretech space will move forward through a combination of both approaches.
Grade: C. While it got the rough idea correct, it certainly left out many details and didn’t cite the progenitor of the thesis. 🙂
#8: Insurance Humor
Q: Tell a joke about why how many insurance CEOs it takes to change a light bulb.
A: How many insurance CEOs does it take to change a light bulb?
None. They just raise the rates and leave the customers in the dark!
Grade: A+, but wow, the AI really does not like insurance CEOs!
#9: Flo From Progressive’s Back Story
Q: Write a short story about how Flo from Progressive first fell in love with insurance.
A: Flo was always a bit of an odd duck. She had an enthusiasm for the mundane that most found strange; she was in love with the idea of insurance. She didn’t just like it – she was obsessed.
Every day Flo would talk to her friends about the different types of insurance and the advantages of each one. She was always coming up with new ideas for different types of policies and she would spend hours researching the best ways to get the most coverage for the least amount of money.
One day, while Flo was out looking for the perfect insurance policy, she stumbled upon the Progressive Insurance Company. She was immediately drawn in by the company’s commitment to customer service and their dedication to providing the best possible coverage for their customers.
Flo was so impressed by Progressive that she decided to become an agent. She spent hours studying the different policies and reading up on the different companies. After months of hard work, Flo finally got her insurance license and started working at Progressive.
The more Flo worked at Progressive, the more passionate she became about helping people find the perfect insurance policy for their needs. She was always eager to answer any questions and help her customers understand all their options.
It wasn’t long before Flo realized she was in love with insurance. She had found something that she was passionate about and that she could make a difference in. She had finally found her true calling and it was insurance.
Flo has been a proud Progressive agent for many years now and she still loves her job. She loves helping her customers and making sure they get the best possible coverage for their needs. Flo is truly in love with insurance and she’s never been happier.
Grade: A-. Would have been an A+ but for thinking she was an agent. However, according to the company, many customers do believe Flo works as an agent, so you can’t totally fault the AI for thinking it too.
#10: How Insurance Saved Christmas
Q: Write a short story about how insurance paid all the Whos in Whoville for the toys stolen by the Grinch and they celebrated with a Roast Beast.
A: It was a festive time in Whoville. Everyone was happily making their presents and decorations for Christmas. Little did they know, the Grinch was lurking around town, plotting to ruin their holiday.
On Christmas Eve, the Grinch snuck into all the homes in Whoville and stole all the presents and decorations. The Whos were devastated and heartbroken. They had nothing to celebrate with.
Just then, a miracle happened. The Whos received a letter from their insurance company. The letter said that the insurance had paid for all the gifts stolen by the Grinch.
The Whos were overjoyed! They quickly replaced all the presents and decorations and celebrated with a Roast Beast dinner. Everyone was so happy that they even invited the Grinch to join in the festivities.
The Grinch was touched by their kindness. He realized then that Christmas isn’t about presents and decorations, but about the joy of being together.
The Whos and the Grinch celebrated Christmas that year with a great feast and lots of laughter. From then on, the Grinch was no longer so grinchy, and the Whos were grateful for their insurance company.
Grade: A. I liked the happy ending but it needed a few more rhymes.
The Turing Test
So, how well do we think ChatGPT did? To be fair, there is a survivorship bias above.
I only included ones that I thought were good. There were plenty of misses you don’t see, so the grading is skewed. If you want to get a better sense of what the software is capable of, you should try it yourself.
That said, I would suggest the answers I generated are as good as the “average” insurance analyst or consultant. From a Turing Test perspective, I would argue the results above are largely indistinguishable from a mediocre Wall Street analyst report (i.e. the ones written by the associate with a cursory readthrough by the lead analyst).
Now, maybe that sounds like damning with faint praise, but, remember, most of those people are well paid and have an excellent education. They are among the best and brightest our country produces.
That being said, this conclusion only holds true for the answers that were fit to print. The bad answers were way worse than even the lowest quality insurance analyst or a lazy high school student.
So, I don’t think anyone has to fear for their jobs yet, but the bar will hopefully be raised where, if you mail a report in, your boss says “I could have had ChatGPT do that”. Thus, the quality of work and analysis will hopefully improve (just as the early days of the internet improved productivity).
There are also obviously vast implications for customer service (including insurance) where it will be easier to ensure consistent standards. It is easy to see how AI will supplement underwriting processes across financial services.
This will have large implications for many businesses similar to the impact Google first had, so if you haven’t tried it out yet, I really suggest you give it a try.