Kobi Bendelak
Risk allocation efficiency is a foundational principle of insurance markets. Broadly defined, it reflects the ability to distribute risk between insurers and policyholders in a way that minimizes economic distortions and costs while preserving risk pooling, stability, and appropriate behavioral incentives. This balance is not produced by market forces alone, but is historically shaped by legal, regulatory, and ethical frameworks designed to ensure fairness and public trust.
The integration of artificial intelligence and advanced computing capabilities is fundamentally transforming how risk is assessed, priced, and managed. Advanced predictive models allow insurers to refine underwriting accuracy, align premiums more closely with actual risk, reduce underwriting errors, and lower systemic uncertainty. From an economic perspective, these developments hold significant potential to improve resource allocation and reduce costs across the insurance value chain.
Yet algorithmic efficiency is not an absolute virtue. Excessively granular pricing can undermine risk pooling — a core function of insurance — by over-segmenting risk groups or excluding certain populations from coverage. In such cases, markets may become more efficient for insurers but less stable and socially sustainable. Legal and regulatory frameworks therefore play a critical role in setting boundaries for technological deployment and shaping how efficiency gains are translated into market practices.
Claims management also plays a central role in risk allocation efficiency. The use of AI to detect fraud, prevent overpayments, standardize decisions, and accelerate claims handling can reduce volatility in payouts and improve overall risk management. These improvements indirectly affect pricing, insurance availability, and long-term market stability.
The core challenge is balance: how to allow artificial intelligence to enhance economic efficiency without eroding risk sharing, fairness, and public confidence. This challenge is as much legal, regulatory, and ethical as it is technological, and its resolution will shape the future structure of insurance markets.
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Kobi Bendelak is the CEO of InsurTech Israel, leading the Israeli InsurTech ecosystem and operating the Israeli InsurTech Accelerator Program since 2021.
This is the first in a series of three articles. these articles are based on ongoing conceptual and research work exploring the economic, legal, regulatory, and ethical implications of artificial intelligence and advanced computing capabilities on the insurance industry.
