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Is AI the future of insurance?

02 February 2024

Artificial Intelligence technologies are increasingly being adopted and implemented across industries and sectors. This article explores how AI is likely to impact the insurance sector and how the industry can prepare itself for this change.

While AI has been a hot topic recently, the insurance  industry has been exploring and utilising artificial  intelligence for several years in various forms,  including large language models (similar to ChatGPT), natural language understanding, machine learning  and Generative AI. AI continues to disrupt the  insurance industry in a number of ways including  customer service, underwriting, pricing and fraud  detection, as well as creating new products and channels. 

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.

Read the report

Further Reading