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Technology is advancing every day, affecting industries from retail to manufacturing and even insurance. It has become increasingly apparent that artificial intelligence (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 secure transactions, detect insurance fraud, prevent risk and even potentially decrease the cost of a policy.
As these technologies become more widespread, the insurance industry may potentially become more efficient, accurate and secure. As AI and other digital solutions continue to be implemented, there are several benefits that may be experienced by insurance companies — from auto insurers, to homeowners and life — and consumers alike.
What exactly is AI?
Artificial intelligence (AI) has become one of the biggest buzzwords of the digital age. If you are 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.
While AI may sound like a futuristic concept, many of its use cases are already ingrained in our everyday lives. For example, whenever one of your favorite streaming services, like Hulu or Netflix, recommends a great new show for you to binge-watch based on your preferences, that is AI at work. AI is also 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 offer personalized treatment plans and predict the likelihood of patient readmissions. Banks are using AI to manage customer portfolios and identify cybersecurity threats.
Over recent 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, with the potential for more insurance providers to implement the technology across their businesses over time. 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, a home insurance company could use AI to get information about a person’s geographical location, marital status and likelihood of filing a claim to set premiums 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. The time needed for processing claims could reduce from several days to hours or even minutes. It would also allow insurers 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 is not just making waves inside the insurance industry, but it is 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 many people might assume there will be fewer traffic accidents when most cars on the road drive themselves. But in a world with virtually no car accidents, there may not be much use for auto insurance policies. In this situation, insurance companies may need to reevaluate how they price their policies, what is included in their policies and if they can sustain their business through other types of insurance, like business or life insurance.
However, an AI-based shift toward increased road safety may still be a future concept. Because self-driving vehicles are still fairly new, there are lingering questions surrounding how these vehicles are used and how accidents will be handled. In 2018, an autonomous Uber vehicle was determined to be at-fault for a collision-related death. As bumps like these continue to occur, auto insurers expect an adjustment period to know how to determine fault, offer necessary coverages and handle claims. However, liability insurance is likely to remain as a standard.
Additionally, as AI and machine learning become more dominant factors in the insurance space, digital car insurance companies, like Metromile — or digital home insurance companies, like Lemonade — may become more popular.
Let’s talk trends
Most people would probably agree that the insurance industry could use a boost, and that is exactly the goal with implementing AI. In the not-so-distant future, technology could dramatically impact both insurance companies and people with insurance. Here are some of the trends you can likely anticipate as AI makes its mark on the insurance industry.
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: AI has the ability to better help businesses learn consumer habits, make valuable recommendations and simplify how their products are categorized and promoted. In other words, AI helps remove the friction in consumerism. This might help insurance companies expand their partner networks and take their legacy systems into the future. This application of AI could 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.
Wellness pricing: As we mentioned earlier, AI can capture data about behavioral habits. It is 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 might eliminate millions of jobs from the economy.
Privacy issues: It is no secret that your personal data is likely available somewhere within the cloud, whether companies are using it or not. However, many people are not comfortable with companies having increased access to their data, even if it is 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. According to McKinsey, a global management consultant firm, AI implementations could increase productivity in insurance processes and reduce operational expenses by up to 40% by 2030. 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 may enjoy a more seamless user experience and more affordable rates. Insurance companies might save money by making their processes more efficient or offering AI car insurance policies. With AI, the possibilities are boundless, and it is only a matter of time before we start seeing these improvements.