Mar 24, 2023
The impact of AI on the future of Insurance
According to estimates from McKinsey, AI investments will drive up to $1.1 trillion in value for the insurance industry annually. The bulk of this value ($888.1 bn) will come from marketing and sales, but it will span all facets, from risk to operations to finance & IT to HR. But what exactly will AI look like for the average insurer, and how can they leverage it to achieve these business outcomes? That’s what we will explore in this blog.
The modern insurance landscape – Why is there a need for AI?
Insurance is one of the largest industries in the world, with a total market cap of $692.33 billion in 2020, projected to reach $1613.34 billion by 2030.
So, any major shifts in the global landscape will have an outsized impact on this industry. And there’s been no shortage of changes since the COVID-19 pandemic.
The number one challenge facing insurance is how highly competitive this industry is. New entrants, digital disruptors, and insurtech startups are making it increasingly important to find ways to get ahead of the competition and gain a competitive advantage.
Furthermore, customer expectations have radically evolved. Customers demand more personalised products and services, faster response times, and more insurer transparency.
At the same time, insurers are processing more data than ever before. Insurers must have the right tools and expertise to extract insights from their data and use it to make informed decisions.
Insurers are also facing growing pressure regarding an increasingly complex global web of regulatory compliance that comes with the risk of fines, reputational damage, and legal issues.
Lastly, cybersecurity threats and risks have proliferated since the pandemic.
All of this leaves insurers thinly stretched and looking for ways to augment their human resources abilities. This is the type of problems AI is particularly adept at helping to solve in the following ways:
- Automating processes like claims processing and underwriting can save time and reduce costs.
- Data analysis helps insurers identify patterns and trends to make more informed decisions in less time and with greater accuracy.
- Risk assessment, by analysing data on past claims and identifying potential risks, insurers can make more accurate predictions and set premiums that reflect the truth.
- Fraud detection by analysing patterns and anomalies in claims data.
- Customer service by providing personalised recommendations and answering customer queries in real time.
Overall, AI can help insurers improve efficiency, reduce costs, and make more informed decisions, which is why it has become an essential tool in the modern insurance business.
AI trends shaping the future of insurance
As AI technologies continue to improve and mature, AI’s benefits are bound to become increasingly pronounced. We are already seeing major developments in the following areas that will make AI even more valuable to insurers in the future:
- Predictive analytics: Machine learning algorithms are increasingly adept at analysing historical data and predicting future events. These models will continue to become more sophisticated, efficient, and accurate as they’re exposed to more data and trained to produce desired results.
- Chatbots and virtual assistants: Advancements in NLP (natural language processing), NLG (natural language generation), NLU (natural language understanding), and LLM (large language models) are making these systems increasingly life-like and able to respond intelligently to complex queries.
- Telematics: Telematics is the use of technology to monitor driving behaviour, such as speed, acceleration, and braking. In the insurance industry, telematics can offer usage-based insurance (UBI) policies, which allow insurers to price premiums based on the actual driving behaviour of policyholders.
- Image recognition: Image recognition technology is used in the insurance industry to automate claims processing. Insurers can use AI algorithms to analyse photos and videos of damage and assess the extent of the damage, which can speed up the claims process and improve accuracy.
While we are already experiencing some of AI’s immense benefits, new developments are always around the corner. There’s no way to predict what new technology may emerge tomorrow that will completely up-end our existing notions such as ChatGPT did in late 2022/early 2023. So, it’s best to get on the train as soon as possible and start developing internal AI maturity in your organisation.
AI in insurance use cases
We’ve already touched on some use cases for AI in insurance. However, here are a few more to provide additional insight or inspiration into how insurers can leverage this technology:
- Claims management: Using AI, RPA (robotic process automation), and IoT, insurers can almost completely automate repetitive, standardised, and attention-demanding claims processing. This will also reduce dependence on paper-based systems, which eat 50-80% of premium revenues.
- Document digitization: OCR (optical character recognition) and image recognition have drastically improved recently. The ability to rapidly scan a document and digitize its contents will drastically decrease paper-based systems and improve operational efficiency.
- Underwriting: Conventional rule-based evaluation and risk engines can’t keep up with today’s scale, complexity, and speed requirements. IoT sensors and OCR tools can help insurers assess assets’ value faster and more accurately. Artificial Intelligence insurance underwriting can also help adjust values over time based on increasingly complex models.
- Winning customers with premiums: One example is how new vehicles collect and transmit vast amounts of data. Insurers can leverage this information to offer premiums that are highly personalized and more attractive to individual drivers to beat out the competition.
The impact of AI on the future of insurance is already significant and far-reaching, and there’s no telling to what heights it will skyrocket as these nascent technologies evolve. AI has the potential to transform the way insurers operate by improving efficiency, reducing costs, and providing more personalised products and services to customers.
If you want to learn more about how Innovo can help you to leverage AI to improve efficiency and reduce costs in your organisation, contact us today.