TRANSPARENT AI – FIGHTING THE GOOD FIGHT

Transparent AI –
fighting the good fight

Transparent AI – fighting the good fight

Choosing the right AI can positively transform the

insurance industry

AI represents both a hot topic and a potential mine-
field for the insurance industry.
While most can agree that a greater volume of data
can deliver improved decision making and a more
personalized service, the correct use of AI and ma-
chine learning are fundamental to using data mean-
ingfully, fairly, and profitably.
The type of AI used, and the way in which it is ap-
plied to the insurance industry, is not without pit-
falls. While some industries, such as manufactur-
ing, real estate and logistics can use ‘black box’ AI
(where algorithms are calculated by machines in a
way that has no transparency) with few impactful
consequences, for industries such as insurance,
banking and healthcare, transparency and the abil-
ity to shape the data and to demonstrate how de-
cisions have been made is critical – not only for
regulatory reasons, but to ensure that the right de-
cisions are being made in a way that is inclusive
and of benefit to consumers.
With the current economic climate in a state of flux
and instability, the power to make rapid, accurate
decisions and effectively use available data be-
comes increasingly crucial to moving with the mar-
ket, diversifying and refining offerings, and safe-
guarding an organization’s bottom line.
The journey to an AI world
The past decade has seen a significant transforma-
tion in the use of AI and machine learning in busi-
ness, originating with a multitude of new ways to
collect data and solving the endless challenge of
how to use that data effectively.
The world has changed too, from a relatively stable
environment, to one of rapid change and uncertain-
ty. The recent global pandemic has created a dis-
ruption of supply chains and shortages in essential
products and services that are still in evidence to-
day. This, in combination with rising interest rates
and a volatile stock market are suggestive of an
imminent global downturn. The insurance indus-
try has also changed. It’s no longer the province of
established players operating in a market that they
know and understand, making decisions and doing

things the way they have always done them.
New players are entering and disrupting the market;
from big tech companies such as Amazon and Ap-
ple, to smaller, niche players who are using health
data from smartwatches, telematics from vehicles,
and more, to offer customers a more bespoke ser-
vice. Consumers are requiring more from insurers,
and the days of being placed on hold while a cus-
tomer service rep at the end of the phone calculates
a quotation are gone. Customers demand 24/7 on-
line services and instant, personalized decisions,
based on the individual’s personal risk factors.
To enable this, insurance companies need AI. But
unless the AI used is transparent and controllable,
poor decisions can be easily made, leading to in-
creased risk, regulatory challenges, and negative
outcomes. Transforming the way things have al-
ways been done may feel like a big step for an in-
dustry that is by its very nature cautious, but it’s a
step where the benefits outweigh the risks.
AI – Good vs Evil
According to TechTarget, the definition of black box
AI is: “… any artificial intelligence system whose in-
puts and operation are not visible to the user or an-
other interested party.”
In essence, there is no transparency on how the
outputs and decisions are made and processed;
there are simply data inputs and the end outcome.
While black box AI is excellent at generating highly
accurate data, there is no opportunity for clarity or
influence in how these data are determined.
While there is certainly a place for this kind of deep
machine learning, it isn’t in the insurance industry.
Black box AI can easily build unconscious biases
which lead to adverse selection and create errors
in pricing models, resulting in bad decisions and
discrimination against individuals. For example,
AI-driven facial recognition technologies can mis-
identify non-white or female faces; AI-driven hiring
software can reinforce gender and racial prejudice.
TRANSPARENT AI – FIGHTING THE GOOD FIGHT
Vendors such as IBM halted the sale of such tech-
nologies because of these very issues.
A prime example of this is the gender bias contro-
versy around Apple’s credit card in November 2019.
Even though gender did not appear on the credit
card application forms, the algorithms reconstruct-
ed this information by associating variables such
as type of spending, or retailers visited, and applied
a higher risk factor to a large share of women on
these grounds - without data scientists or bank
rating modelers knowing or noticing it. This led to
a media storm and a regulatory investigation, and
greater demands for transparency when using AI.
To succeed in the insurance industry, AI needs to
be clear and be able to harness the many nuanc-
es that actuaries use to make appropriate, fair
and accurate decisions. This is where transparent
AI comes into play and becomes a crucial part of
the actuary’s toolkit. The ability to influence and
fine-tune data, maintain a clear view of the deci-
sion-making process and ensure that the right out-
comes are taking place becomes a powerful tool
in the transformation of the insurance industry and
benefits everyone.
What is transparent AI?
Nuance can easily confuse those who don’t under-
stand AI. While we’ve discussed the ways in which
AI needs to be explainable for the insurance indus-
try, in fact, it needs to go further.
So, what’s the difference between explainable AI
and transparent AI?
Christopher Woolard, Executive Director of Strategy
and Competition at the Financial Conduct Authori-
ty, says: “Algorithmic decision-making needs to be
‘explainable’.” He continues: “… But what level does
that explainability need to be? Explainable to an in-
formed expert, to the CEO of the firm or to the con-
sumer themselves? It’s possible to ‘build in’ an expla-
nation by using a more interpretable algorithm in the
first place, but this may dull the predictive edge of

the technology. So, what takes precedence - the ac-
curacy of the prediction or the ability to explain it?”
Explainable AI can only be explained in hindsight.
It can be compared to an inverted train of thought,
where you start from the end and arrive at the be-
ginning, to retrace the path that was chosen by the
algorithm. It allows for an understandable and jus-
tifiable decision that was made by the algorithm,
but only once the decision has been made and the
result is determined.
What explainable AI does not provide is a transpar-
ent understanding of the thought process that led
to the decision being made. In fact, it leaves many
unanswered questions:
• What choice would the algorithm make in a dif-
ferent situation?
• For what reasons?
• What variables were used in that decision?
• How were they used?
Correlations between variables that are computed
by algorithms are almost uncontrollable. The Apple
credit card was a case in point – only the impact of
the decision could be understood; not the process
that was followed to reach that outcome.
Explainability isn’t enough in the insurance industry.
What is needed is transparency.
These omissions are precisely what transparent AI
addresses. Not only does it allow for a full explana-
tion of the model’s output, but for the modification
or amendment to the computation and modeling
process itself. AI transparency goes much further
than explainable AI, combining both the automa-
tion power and performance of AI, with the reliabili-
ty and auditability of traditional manual models.
The notion of transparency being applied to AI is at
the core of the governing principles for ethical AI.
The paper: ‘Ethics guidelines for trustworthy AI,’ by
the European Commission has established seven
TRANSPARENT AI – FIGHTING THE GOOD FIGHT
principles for governing the ethical issues arising
from AI system use. Principle four is ‘transparency.’
It strives for AI systems that are based on the con-
cept of explainability, which includes transparency
and communication of the data, the system and the
business models involved.
The US National Association of Insurance Commis-
sioners (NAIC) has formed a special committee fo-
cused on race and insurance, and adopted guiding
principles that demand AI is fair, ethical, account-
able, and safe. Insurers, and rating and advisory or-
ganizations “should be responsible for the creation,
implementation, and impact of any AI system, even
if the impact is unintended,” states their Innovation
and Technology Task Force.
In other words, AI should be at the service of, and
controlled by humans; not served by, and controlling
humans. Insurers need to be the ones in control.
This also aligns with customers demanding trans-
parency. They want to understand how decisions
are being made, the factors that were used to make
them and what ability they have to challenge deci-
sions they feel are unfair. Trust matters. Insurers
who fail to consider these factors will inevitably fall
by the wayside, as consumers vote with their feet.
According to the Capgemini Research Institute’s,
‘AI and the ethical conundrum’ report 2020, 70% of
customers expect organizations to provide AI inter-
actions that are transparent and fair.
A fairer form of intelligence
While it goes without saying that insurers have an
obligation to their investors and shareholders, they
also have a responsibility toward their customers.
Particularly at times like these, when the cost of
living is skyrocketing, and people are facing real
struggles with day-to-day living, customers need re-
assurance that they are being treated fairly. While
black box AI is incompatible with equitable, fair
treatment, transparent AI allows insurers to deliver
greater value to customers.

Regulators too are increasingly honing in on
opaque pricing practices that result in the unfair
and unequal treatment of customers. In 2020, The
UK Financial Conduct Authority (FCA) openly criti-
cized insurers for ‘complex and opaque’ pricing for
car and home insurance policies, proposing radical
reforms designed to boost competition, deliver fair
value and increase trust in the sector. In 2021, its
proposals were accepted with estimated consumer
savings of around £3.7bn over 10 years.
Transparency on data is also a hot topic for insurers.
According to an article published in The Insurance
Portal, Jim Tyo, Chief Data Officer at Nationwide In-
surance said: “… insurers must be transparent about
what information they have and how they intend to
use it to the benefit of consumers, partners and even
internally.”
As an undisputable sign of this profound trend of
ethical data, the tech giants have started to take
strong positions to advocate for the responsible
use of technology. Google has committed to never
pursuing any AI applications that may cause harm,
Microsoft has drafted their AI principles and IBM
has vouched for fairness and transparency in all al-
gorithmics.
Yet Capgemini reveals that close to 60% of organi-
zations have attracted legal scrutiny and a further
22% have faced a customer backlash because of
decisions reached by AI systems. This is forcing
organizations in all industries to carefully consider
the creation of an ethics charter, the employment of
Chief Ethics Officers and building leadership frame-
works to ensure clarity in their AI.
This advocacy for better, fairer customer treatment
and stronger ethics in insurance practices finds a
rightful home in transparent AI, giving insurers the
opportunity to build greater trust and a more solid
relationship with their customers, while ensuring
regulatory compliance.
Gartner notes that “… effective decision making —
that is connected, contextual and continuous — re-
TRANSPARENT AI – FIGHTING THE GOOD FIGHT
sults in a host of business benefits, including great-
er transparency, accuracy, scalability and speed.”
This is where intelligence plays a role in ensuring
that the decisions that businesses make from their
AI are clear, actionable, and have a positive effect
across an organization.
Insurers are lagging in the adoption
of AI
The use of AI has quickly expanded over the past
few years across all sectors, driven by proven sub-
stantial financial benefits for organizations. The
report: “Smart Money, How to drive AI at scale to
transform the financial services customer experi-
ence,” from Capgemini Research Institute pinpoints
that 13% of insurers have witnessed a reduction in
the cost of operations and 11% an increase in reve-
nue per customer after deploying AI.
In addition, DataRobot reports that AI leaders gen-
erate five times the amount of ROI than firms that
are further behind on their AI journey.
Yet the same report notes the adoption rate of AI
within the insurance industry is lagging behind oth-
er fields: only 6% of insurers have been able to de-
ploy AI at scale, compared to life science at 27%,
retailers at 21% and government at 9%.
It is clear that the organizations that embrace AI
now (or have done so already) will survive and
thrive, while those who lag will fall behind.
Conclusion
Key considerations for AI in the insurance industry
include:
• Privacy – protecting the use and exchange of
data is vital for building trust.
• Bias – using actuary knowledge and experience
to ensure fairness and promote equitable deci-
sion making.

• Transparency – going beyond explainability, to
map the clear path and decision making from
data entry, to final decision.
• Ethicality – ensuring that every step of the AI
process is ethical and compliant with regulato-
ry requirements.
• Impact – the end results and how they reflect
your organization, brand and customer percep-
tion.
Transparent AI is the safest way for insurers to use
AI-powered solutions at scale. The process of en-
suring end-to-end transparency is a win-win: brin-
ging clarity, performance, and speed, creating value
while building consumer trust through unbiased,
ethical decisions and fair treatment through com-
petitive offerings.
www.akur8.com /company/akur8
TRANSPARENT AI – FIGHTING THE GOOD FIGHT
ABOUT AKUR8
Akur8 is revolutionizing insurance pricing with Transparent
AI, boosting insurers’ pricing capabilities with unprecedented
speed and accuracy across the pricing process without com-
promising on auditability or control.
Our modular pricing platform automates technical and com-
mercial premium modeling. It empowers insurers to compute
adjusted and accurate rates in line with their commercial strat-
egy while materially impacting their business and maintaining
absolute control of the models created, as required by regula-
tors worldwide. With Akur8, time spent modeling is reduced
by 10x, the models’ predictive power is increased by 10% and
loss ratio improvement potential is boosted by 2-4%.
Akur8 already serves 45+ customers across 20+ countries,
including AXA, Generali and Munich Re; specialty insurers
Canopius and Tokio Marine Kiln; insurtechs Wakam and wefox;
and mutual insurer Matmut. 700 actuaries use Akur8 daily to
build their pricing models across all lines of business.
contact@akur8.com