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What’s Next for AI in Insurance? 6 Trends to Watch in 2025: Two Seasoned Industry Leaders Weigh In
As AI technology continues to evolve – both traditional AI (which perform tasks such as data analysis and making predictions) as well as generative AI (which uses large data sets to generate new content, answer questions, and explain concepts) – the insurance landscape in 2025 is set for more transformative changes. From optimizing underwriting and claims processes to navigating complex regulatory requirements, AI is empowering insurers with enhanced insights, streamlined operations, and greater accuracy in pricing.
6 Key Predictions: How Artificial Intelligence Will Impact the Future of Insurance
Gradient AI’s CEO, StanSmith, and General Manager of P&C, Jeff Snider, offer their expert insights on how these advancements will drive competitive advantage and elevate customer experience. Here are six key predictions from these seasoned industry leaders on AI’s impact in shaping the future of insurance in 2025.
1. AI Will Drive Next Best Action Recommendations in Underwriting and Claims Management
Today, insurers use AI for simpler tasks like processing straightforward data inputs or automatically categorizing claims.
By 2025, insurers will increasingly leverage AI to provide next best action recommendations for both underwriting and claims management. “Next best action’ recommendations mean that underwriters will receive specific suggestions to adjust coverage limits or additional data sources to better assess risk, based on AI-driven insights. Similarly, for claims adjusters, AI will suggest specific next best actions such as seeking additional documentation or identifying the optimal settlement path based on previous claims data. For example, with Medicare Set-Asides, AI will automatically determine whether additional information or approvals are needed to meet compliance requirements. This will help reduce the amount of manual oversight and expedite the process.
AI’s advanced insights will continue to help streamline decision-making and allow insurers to achieve greater efficiency and consistency across their operations.
2. Specialized GenAI Will Become Commonplace in Insurance
While many insurance companies have started experimenting with general generative AI tools, their capabilities often fall short when it comes to the industry-specific needs of insurers, like analyzing policy language or understanding regulatory requirements.
As demand grows, insurers will increasingly adopt specialized Gen AI models designed specifically for the insurance sector. These specialized tools will be tailored to analyze intricate policy documents, develop custom pricing models, and draft tailored policy language, making them far more effective than general-purpose AI. This shift will enable insurers to better navigate complex regulatory environments and improve their ability to design personalized insurance products, ultimately leading to greater accuracy and customer satisfaction. As technology evolves, the focus will shift to increasingly specialized tools that can better interpret nuanced insurance data.
3. Insurers will Transition to a More Gradual Approach to Digital Transformation to Avoid Legacy System Overhaul Failures
Many insurers have attempted to modernize their legacy systems, but a significant number of these efforts have failed, often due to the overwhelming scope of the projects. When insurers take on too much at once, such as attempting to replace all core systems simultaneously, the complexity can become unmanageable, leading to costly setbacks.
In 2025, more insurers will pivot to a phased approach to digital transformation, implementing targeted upgrades instead of complete system overhauls. This approach will allow companies to focus on specific areas like customer portals or underwriting modules, integrating AI gradually and minimizing disruption to existing operations. This incremental strategy will help insurers avoid the pitfalls of past modernization attempts while still improving efficiency and competitiveness in the market. The key will be to focus on smaller, high-impact projects that deliver immediate value, building momentum over time.
4. Specialized Data Sources Will Increase Insurance Risk Assessment Accuracy
Insurers today typically use established data sets like historical loss data, demographic information, and general weather reports to assess risk. The current AI models used today handle broad categories of risk—they rarely leverage niche data sources.
In 2025, insurers will start to integrate specialized data sources such as climate and health data to enhance risk assessment and underwriting. For example, we may see insurance companies leverage climate change information from localized sources such as reports from coastal surveillance or community-based environmental organizations. This information will be used to calculate prospective risks for property damage and climate-induced health concerns. Tapping into health data, like fitness-related information from smartwatches, will allow insurers to differentiate between policyholders who may look the same in a policy application but actually represent vastly different risk profiles (e.g., active triathletes vs. sedentary individuals with significant latent health risks). This precise data integration will provide insurers with a holistic view, ultimately enabling more accurate policy pricing and claims assessments.
5. Automated Insurance Document Processing Will Become Smarter and More Scalable
Currently many insurance companies use basic document automation for small-scale digital document processing. This often involves summarizing brief records or extracting simple information from structured documents. However, when they need to process large, complex files like medical records, this still requires significant manual input.
In 2025, we’ll begin to see large-scale, high-accuracy automated document processing change the way documents are managed. Insurers will be able to process thousands of lengthy, multi-format documents efficiently, handling everything from de-duplicating redundant data to categorizing unstructured records. For example, claims involving extensive medical histories will no longer require tedious manual reviews, as automated systems will quickly summarize and catalog pertinent details across hundreds of pages. This means that claims processing will be faster, cheaper, and more accurate, allowing insurers to manage even higher volumes of claims while reducing error rates and improving customer satisfaction.
6. Insurers Will Align AI Models with New Regulatory Demands
As insurers expand their use of AI to streamline underwriting and claims management, industry standards for responsible AI use will become more uniform across states. Recently, the National Association of Insurance Commissioners (NAIC) adopted a model bulletin outlining compliance requirements for insurers’ AI systems. This bulletin clarifies expectations for development, deployment, and documentation of AI technologies to ensure adherence to state and federal laws. So far, at least 11 states, along with Washington, D.C., have issued bulletins incorporating NAIC’s language, including Alaska, Connecticut, Illinois, Kentucky, Maryland, Nevada, New Hampshire, Pennsylvania, Rhode Island, Vermont, and Washington.
In 2025, insurers are expected to adopt transparent, AI-driven models that align with both NAIC guidelines and specific state regulations. These models will also include explainable AI components to ensure clear, auditable insights into predictive processes to meet compliance demands. For insurers operating across state lines, these advancements will streamline regulatory adherence and enhance consumer trust by offering transparent, ethical risk assessments. This shift will establish responsible AI use as a foundational standard in the industry, reshaping the role of predictive analytics and data usage in insurance.
Conclusion: AI Has the Potential to Optimize Core Insurance Processes
As AI becomes further embedded into the fabric of insurance operations, 2025 will be the year for redefining efficiency, compliance, and innovation across the industry. The trends outlined in this piece underscore AI’s transformative potential to optimize core processes. By harnessing the capabilities of both traditional and generative AI, insurers are positioned to drive meaningful change, unlock new growth opportunities, and deliver greater value to customers. The future of insurance is here, and those who embrace these advancements will shape the industry in powerful, enduring ways.