Man vs. machine, mudslides and managing through a hard market

Don't count out us humans just yet! The battle between what we bring to the table and AI-driven automation is reshaping insurance. Algorithms process massive datasets and streamline underwriting — but can they replace human judgment? Not in commercial insurance, where complex risks demand negotiation, intuition and adaptability.

"The insurance industry’s technology arms race is not about choosing between man and machine but about finding ways to harness the strengths of both," Optalitix 's Dani Katz wrote for an article published this week on Insurance Day . "By fostering collaboration between humans and machines, insurers can navigate market challenges, improve profitability, and deliver exceptional value to their clients."

As insurers wrestle with the balance between AI and human expertise, another force refuses to be automated — nature itself. Los Angeles was just hit with torrential rains and mudslides, a stark reminder of how unpredictable risks can be. With burn scars from recent wildfires, the region is primed for flooding, road closures and devastating damage. For insurers, it’s another lesson in adapting to ever-changing risks. Technology can predict patterns, but human judgment remains critical in responding to crises.

So yes, residents are facing another curve ball in their disaster recovery process. Now, as the storm clears, it's back to the massive challenge that looms: rebuilding. As of February 5, insurers have already paid out $6.94 billion in claims related to the wildfires, covering homes, businesses and vehicles. With more than 33,000 claims filed, the total will keep rising as policyholders navigate the thorny recovery process.

“With so much misinformation and speculation surrounding our insurance market after the Southern California wildfires, it is crucial for the public to track claims and monitor payouts," California Insurance Commissioner Ricardo Lara was quoted as saying in Reinsurance News . “I expect insurance companies, including the FAIR Plan, to continue providing essential advance payments to help survivors recover as quickly as possible.”

Moving to a broader claims conversation, it’s clear that claims handling has certainly evolved— but has it truly transformed? A story this week on Insurance Thought Leadership explored this very question, emphasizing the need for a reinvention of the core process.

While AI and automation hold the promise of greater efficiency, the industry's fragmented vendor landscape and legacy systems continue to hinder meaningful innovation.

So, what’s next? This is how InsurTech Consulting 's Alan Demers, CPCU, AIC and Insurance Solutions Group 's Stephen Applebaum see it: "Real transformation by large, complex companies is not possible without the clearly articulated encouragement from leadership, including CEOs and the rest of the C-suite." Leaders must not only articulate the need for change but also champion the innovation required to make it happen.

Shifting gears to broader investment strategies, Conning 's latest Insurance Investment Risk survey provides key insights into insurers’ outlook for 2025. While optimism remains strong — 77% of the 310 professionals surveyed are confident about what lies ahead this year —sentiment has cooled just a bit from last year's 80%.

"A greater level of uncertainty has likely led to greater restraint in insurers’ investment planning,” Conning's Matthew Reilly, CFA said. “However, insurers still expect to increase investment risk, expanding beyond their more traditional fixed income portfolio holdings to include greater exposure to private assets, in order to achieve yield and diversification.”

Inflation has dropped as a top concern, giving way to political instability and other emerging risks like market volatility and AI. Private assets remain attractive, though liquidity concerns persist. Insurers are also adjusting portfolio durations, with many opting for a mix of shorter and longer-term assets in response to Fed interest rate policies.

Finally, a fresh report from Gallagher Bassett highlights how insurers are adapting to economic volatility, climate change and shifting customer expectations.

"Current market conditions are seeing carriers actively optimize strategies to manage costs and maintain profitability," Gallagher Bassett Managing Director Joseph Berrios SCLA, AIC wrote in the report. "Efforts to enhance operational efficiency and embrace innovative solutions are at the forefront, helping mitigate the financial impact of rising claims."

Read more on these efforts in the full report.