Insurers are increasingly using generative AI, particularly diffusion models, to produce more precise catastrophe risk assessments by synthetically generating vast numbers of weather scenarios and sharpening spatial resolution beyond what traditional physics-based models can achieve. However, the technology carries risks, including AI "hallucinations" that can produce physically implausible events. Even where the science improves, there is a commercial tension, as insurers may favour models that produce lower loss estimates to justify writing more business rather than those that most accurately reflect risk.
