Technology is advancing every day, and it’s disrupting industries from retail to manufacturing to insurance. It has become increasingly apparent that AI, blockchain and machine learning have the power to transform the future of business and the way people work and live.
These new technologies are already being applied in the insurance industry. Some insurance companies are using AI and machine learning to automate certain parts of the claims handling process and improve customer service. Blockchain is being used to detect fraud and prevent risk.
As these technologies become more widespread, the insurance industry will become more efficient, accurate and secure. That’s a good thing for insurance companies and consumers alike.
What exactly is AI?
Artificial intelligence (AI) has become one of the biggest buzzwords of the digital age. If you’re not familiar with AI, it is essentially the concept that a computer can think, learn and behave like a human. AI can interpret data and use the learnings to perform a variety of tasks. Machine learning is the specific application of AI that allows it to interpret and analyze the data in a productive way.
Today, AI is being used in a number of industries, including healthcare, education, financial services, ecommerce and human resources. Generally speaking, most companies that use AI do so to make their business processes more efficient and to solve problems faster.
In the healthcare industry, for example, many hospitals are using AI to predict the outcome of surgeries and detect certain diseases. Banks are using AI to manage customer portfolios and identify cybersecurity threats. In schools, AI-based systems can be used to grade tests and personalize learning programs.
Over the past few years, the insurance industry has started to implement AI and related tools into business practices. However, insurance companies have been much slower to adopt new technologies compared to some of the industries we mentioned above. But because the insurance industry is so multi-faceted, the possibilities of AI and machine learning are nearly endless.
Artificial intelligence meets the insurance industry
AI has only scratched the surface of the insurance industry. There are dozens of processes that could be greatly improved using AI, and over time, more insurance providers will implement the technology across their business. Some of the applications that can benefit most from AI include pricing, claims handling and fraud detection.
- Pricing: One of the most promising ways AI can improve the insurance industry is around pricing. With AI, insurance companies can price their policies more competitively and personalize them for each customer. For example, an auto insurance company could use AI to get information about a person’s city and state, financial situation and driving record to figure out what they could afford to pay based on the defining criteria.
- Claim handling: Insurance companies spend a lot of money on claims personnel, and insurance prices are often marked up to account for case-solving. Using AI, an insurance company could reduce their hiring spend by automating many of the time consuming processes around claims management and payouts. It would also allow them to provide more customized contracts for customers based on their unique circumstances.
- Fraud detection: The cost of insurance fraud is more than $40 billion per year, and to make matters worse, insurance companies are moving towards complete digitization. However, using AI is an effective way to detect fraud and prevent risk. Using AI can help insurance companies spot abnormalities in claims data and identify false information that customers use to get a lower premium or bigger claim payout.
External AI factors
AI isn’t just making waves inside the insurance industry, but it’s also impacting external factors that could affect how insurance companies operate. AI is skilled at noticing behaviors and trends, and companies are going to be able to take advantage of that data.
One of the strongest examples of this is AI and self-driving vehicles. Autonomous cars are designed with safety in mind, so we can assume that there will be fewer traffic accidents when most cars on the road drive themselves. But in a world with virtually no car accidents, there’s not much use for auto insurance policies. In this situation, insurance companies will need to reevaluate how they price their policies, what’s included in their policies and if they can sustain their business through other types of insurance.
Let’s talk trends
Most people would probably agree that the insurance industry could use a boost, and that’s exactly what is about to happen with AI. In the not-so-distant future, technology will dramatically impact both insurance companies and people with insurance. Here are some of the trends you can expect to see as AI makes its mark on the insurance industry.
Citizen AI: Citizen AI exists to help businesses use AI alongside their existing workforce. One area this will impact is customer service. Insurance customers will likely have more interactions with chatbots if insurers cut back their customer service staff.
Extended reality: Extended reality leverages virtual and augmented reality to put people somewhere else. Insurance companies could use this technology to virtually inspect homes after a claim is filed or look at a vehicle’s safety features before giving a quote.
Data veracity: Data veracity is all about making data more accurate so it can be used to make better business decisions. This will help insurance companies fight fraud and identify potential threats before they happen.
Frictionless business: Frictionless business will help insurance companies expand their partner networks and take their legacy systems into the future. This application of AI is going to give customers more policy options from partner providers.
Intelligent distribution systems: With intelligent distribution systems, insurance companies will be able to upgrade their IT infrastructure. That’s going to be a game changer for mobile apps, online tools and more user-friendly website experiences.
Why does the future still feel so distant?
Because AI is still a relatively new technology, there is some uncertainty around its ability to improve the experience for insurance companies and their customers. AI is not a perfect system by any means—it has flaws that computer scientists are still working out. These are some of the major consequences that AI could have on the insurance industry.
Discriminatory pricing: As we mentioned earlier, AI can capture data about behavioral habits. It’s possible that insurance companies could use that data to set discriminatory rates. For instance, a health insurance company could take someone’s weight and exercise data from their fitness tracker and give them a price based on their assumed health risks.
Job loss: Many insurance companies are interested in using AI as a way to reduce the money they spend on staffing. But many customers still want to talk to a live agent when filing a claim or handling other important issues. If the insurance industry moved to an AI-based workforce, that would eliminate millions of jobs from the economy.
Privacy issues: And of course, there’s the general issue of privacy. It’s no secret that your personal data is floating around the cloud, whether companies are using it or not. However, many people aren’t comfortable with companies getting access to their data, even if it’s used to provide more personalized experiences.
Despite these potential issues, nearly 80% of insurance executives think that AI will transform the way insurance companies collect information and interact with their customers. However, more research needs to be done to determine if insurance customers are keen on the arrival of AI.
AI is poised to disrupt the insurance industry like never before for both insurers and their customers. Customers will enjoy a more seamless user experience and more affordable rates. For insurance companies, they can expect to save money by making their processes more efficient. With AI, the possibilities are boundless, and it’s only a matter of time before we start seeing these improvements.