How will AI change the insurance industry?
Customer services: The insurance industry currently relies heavily on human expertise and manual processes (particularly when processing claims and issuing new policies). The ever-increasing uptake of ‘consumer-connected devices’ such as cars, fitness trackers, home assistants and mobile phones will create a vast amount of data that will allow insurers to accurately evaluate and understand current insureds’ and potential insureds’ requirements. This will enable insurers to provide: (i) a more automated and personalised service including recommending appropriate insurance products; and (ii) more accurate pricing by identifying key trends and optimising processes to make data-driven decisions in all areas.AI virtual assistants also have the potential to revolutionise the claims experience by reducing wait times and providing 24/7 support. Many insurers already use intelligent ChatBots powered by AI that can be used to guide the insured through a claims process and provide necessary information ensuring customer satisfaction.
Fraud detection: AI tools provide insurers with the ability to analyse large amounts of data from various sources, assess risk factors and identify anomalies. Advanced algorithms can also detect suspicious activity allowing insurers to identify claims that require further investigation sooner or which may have been missed entirely by a human-only review.
New products and channels: AI can expedite the development of new insurance products such as usage-based insurance products, including ‘pay as you drive products’ which may increase/decrease depending on where, when, and how a customer drives a vehicle. AI also allows insurers to create personalised insurance products specific to a customer’s precise needs and risk profile.
How can the insurance industry prepare for this change?
Governance and control: Insurers need to adapt their governance and control frameworks to provide clear boundaries for when, where and how AI can be used as part of systems. AI is getting plenty of regulatory attention, which should hopefully promote fairness and inclusion. Insurers should invest in the development and testing of AI systems to ensure they are aware of any associated risks and biases that may be contained in the AI output, continuously monitor this output and prepare clear use documentation.
Collaboration: Insurers must collaborate with other insurers as well as technology providers and regulators to ensure knowledge of AI adoption is shared, and react appropriately to lessons learned. Insurers should also ensure all areas of the business are involved in the adoption of AI (not just the IT team), as it is key to highlight where and how AI is likely to disrupt typical business processes.
Plan: Insurers need a clear and well-evaluated plan to ensure that the adoption of AI supports existing business strategy. Ideally, insurers should have a clear roadmap of any required pilots and discovery periods prior to utilising AI in a live environment. It is also key to have a comprehensive data strategy to assess what data is being inputted into the AI system and establish whether any bias or hallucination is likely to occur.
Balance: Insurers should review the need for innovation against customer protection and should pay close attention to emerging guidance from regulators. Some of the key principles to be considered in this regard are proportionality, fairness, transparency, explainability, data quality, security, robustness and human oversight.
In our latest sector report, our experts delve into some of the key trends and themes we expect to influence the insurance sector during 2024.
