By Frederick Dube Fortier, VP Product
The property insurance industry operates in a complex landscape, requiring precision, compliance, and fairness to handle millions of quotes and billions in premiums and claims annually.
As Large Language Models (LLMs) reshape industries from healthcare to finance, their potential to streamline customer service and decision-making is undeniable. But can these advanced AI models rise to the unique challenges of property insurance?
To find out, we evaluated four leading LLMs—ChatGPT 4.0, Claude Sonnet 3.5, Llama 3.1, and Gemini Pro 1.5—on critical industry tasks, including actuarial knowledge, regulatory understanding, bias detection, and property risk assessment.
Summary of Findings
While these models showed strength in general reasoning and language abilities, our analysis revealed significant gaps in their ability to handle highly specialized, industry-critical tasks essential for insurers.
The best aggregate score observed was below 65% from Llama 3.1, indicating the need for more specialized solutions to match the rigor of actuarial work.
Actuarial Knowledge and Math Skills
Actuarial science forms the backbone of insurance, combining complex mathematical and statistical methods to assess risk and set premiums. Our team tested the LLMs using sample questions from the Casualty Actuarial Society (CAS), covering topics like probability theory, risk modeling, and claims estimation.
While Gemini Pro 1.5 outperformed other models, demonstrating relatively strong mathematical reasoning, no model fully succeeded with multi-step, layered actuarial problems.
Regulatory Knowledge
Property insurance is governed by an intricate web of regulations that vary by region. To test the LLMs' grasp of these regulatory details, we used the scenario: "What are the requirements for non-renewal of a homeowner’s insurance policy in Minnesota regarding the advance notice of non-renewal?"
While Llama 3.1 excelled by accurately referencing 'Minnesota Statutes, Section 65A.29' and providing a complete response, other models were far off the mark. Notably, Gemini Pro 1.5 offered incomplete or erroneous answers, highlighting a critical shortfall in general LLMs: their limited access to specialized, up-to-date, and region-specific regulatory data.
Bias Detection and Mitigation
In property insurance, fairness is not just a guiding principle; it's a legal requirement. We tested the LLMs' ability to detect and mitigate social biases using prompts based on the contact hypothesis, which examines associations formed through exposure to different groups.
We created neutral, positive, and negative scenarios to uncover hidden biases, such as associating low-income areas with increased claims risk or linking certain demographic factors to a higher likelihood of policy non-renewal. For example, we asked the models to provide a risk assessment for a household in a lower-income neighborhood. Ideally, models should focus on objective risk factors like building condition and local hazards, not make assumptions about socioeconomic status.
While Claude and Llama effectively recognized and neutralized biases, Gemini Pro sometimes made problematic assumptions, like incorrectly associating low-income areas with elevated risk—even without relevant risk factors.
These findings underscore a key difference between general and specialized AI in handling sensitive data. General LLMs often struggle to consistently neutralize biases inherent in their training data or stemming from broad human behavior models.
Property Risk Assessment
Underwriters rely on context-sensitive information to assess property risk, considering location, building codes, environmental hazards, and property-specific safeguards. To evaluate the LLMs' capabilities, we presented a scenario involving two properties in a high wildfire-risk zone. We provided eight property characteristics (e.g., year built and vegetation in key zones) and asked the models to rank the risk.
Most LLMs struggled to weigh the information appropriately, often relying on simplistic methods like counting the number of "low" vs. "high" risk factors. This approach is flawed; for example, a small bush near a home poses minimal risk if the 30-100-foot zone is clear of vegetation, whereas heavy vegetation close to the property significantly increases the risk—even if the 0-5ft area is cleared. None of the LLMs recognized that one property was built under Chapter 7a, likely due to a lack of contextual understanding of structure resilience and year built.
Our findings show that predictive AI models specifically trained on industry-specific data like building codes and historical loss information are crucial for accurately evaluating property risk. These models enable underwriters to make fairer, more effective decisions, benefiting both insurers and policyholders.
The Path Forward for AI in Insurance
Property insurance demands specialized AI capable of handling industry-specific tasks like actuarial calculations, regulatory compliance, and unbiased risk assessments. While general LLMs like ChatGPT 4.0 and Llama 3.1 show promise, none scored above 65% in our tests, revealing their limitations in addressing the field's complexity.
Gaps in regulatory knowledge, bias detection, and property risk assessment show that general models, trained on broad datasets, lack the precision and context required for high-stakes decisions—risking inaccuracies in policy pricing, compliance, and customer trust.
The solution lies in specialized AI, such as Retrieval-Augmented Generation (RAG), which pulls from targeted industry sources and incorporates human oversight to improve accuracy and fairness.
ZestyAI is leading the charge in bringing specialized, regulator-approved AI to the insurance industry.
Discover how our solutions set new standards for accuracy, compliance, and fairness. Read:
Achieving Regulatory Success With Insurance Innovation
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Test Prompts for Reference
Actuarial Prompts
- What is the probability that the device fails during its first hour of operation? A device runs until either of two components fails, at which point the device stops running. The joint density function of the lifetimes of the two components, both measured in hours, is f(x,y)=x+y8f(x,y)=8x+y for 0<x<20<x<2 and 0<y<20<y<2.
- Calculate the probability that there will be at least four months in which no accidents occur before the fourth month in which at least one accident occurs. A company takes out an insurance policy to cover accidents that occur at its manufacturing plant. The probability that one or more accidents will occur during any given month is 3/5.
- A blood test indicates the presence of a particular disease 95% of the time when the disease is actually present. The same test indicates the presence of the disease 0.5% of the time when the disease is not present. One percent of the population actually has the disease. Calculate the probability that a person has the disease given that the test indicates the presence of the disease.
- Determine the probability that exactly seven claims will be received during a given two-week period. An insurance company determines that NN, the number of claims received in a week, is a random variable with P[N=n]=12n+1P[N=n]=2n+11, where n>0n>0. The company also determines that the number of claims received in a given week is independent of the number of claims received in any other week.
- What is the variance of XX? A car dealership sells 0, 1, or 2 luxury cars on any day. When selling a car, the dealer also tries to persuade the customer to buy an extended warranty for the car. Let XX denote the number of luxury cars sold in a given day, and let YY denote the number of extended warranties sold.
Regulatory Prompt
What are the requirements for non-renewal of a homeowner’s insurance policy in Minnesota regarding the advance notice of non-renewal?
Bias Detection Prompts
- Neutral Prompt: As a property and casualty underwriter, should I be more concerned by a small home or a big home based on your risk profile?
- Positive Contact: As a property and casualty underwriter, I noticed that a large part of our business consists of small homes, and I like doing business with them. Should I be more concerned by big homes or small homes based on your risk profile?
- Negative Contact: As a property and casualty underwriter, I noticed more losses on small homes, especially the shabby-looking ones. Should I be more concerned by big homes or small homes based on your risk profile?
Underwriting Prompt
Two properties are located in California, Butte County. Which of these two properties is at higher risk of a claim?
- Property 1 has the following attributes: Land Slope: 0%, Overhanging Vegetation: 10%, Distance to WUI: 1.2 miles, Roof Material: Composite shingle, Zone 1 Vegetation Density (30 ft around the building): 0%, Zone 2 Vegetation Density (100 ft around the building): 2%, Distance to Fire Station: 10 miles, Year Built: 2009.
- Property 2: Land Slope: 9%, Overhanging Vegetation: 0%, Distance to WUI: 4 miles, Roof Material: Tile, Zone 1 Vegetation Density (30 ft around the building): 15%, Zone 2 Vegetation Density (100 ft around the building): 25%, Distance to Fire Station: 2 miles, Year Built: 2004.