How Artificial Intelligence (AI) is set to disrupt the Insurance Industry

It’s hard to think of anything that inspires as much excitement, and fear, in today’s business community as artificial intelligence (AI), writes Nikolas Kairinos of Fountech.

To some extent, this is a product of AI’s origins in high-tech industries like robotics and cloud computing. However, where most industries are concerned, AI merely refers to the use of advanced algorithms capable of leveraging vast data sets in order to quickly and accurately perform specific tasks. Therefore, the development of AI will be most keenly felt across industries like finance, law and pharmaceuticals where the ability to automate key processes can create huge efficiencies.

Arguably the industry that has the most to gain from integrating AI enabled tools is insurance. Indeed, the venture capital community considers the insurance industry to be so ripe for disruption that Lemonade, a US InsurTech company, managed to raise $300 million in seed funding at the beginning of 2019.

What sets insurance apart and makes it ideal for disruption? Simple – it is an industry reliant on data, both to predict and manage risks but also to set policy prices at the optimal level. Historically, this was an undertaking carried out by teams of actuaries but increasingly, this is being effectively outsourced to highly refined algorithms.

This has already had a disruptive impact on the industry; Genpact, a global professional services firm that offers a modular AI-based platform, found that 87% of insurers are investing more than $5 million in AI each year. Additionally, more than half are planning to transform many of their existing business processes to better utilise AI tools over the next three years.

AI in InsurTech

Throughout my long career in AI, I’ve seen numerous industries change radically in response to developments in machine learning (ML) technology. However, I believe there are a few structural reasons why the insurance industry is almost uniquely ripe for AI disruption. Primary among these is the central role risk plays in dictating how insurers negotiate the marketplace. Insurers are already using AI to underwrite with greater precision, predict when political or economic shocks will affect different markets and detect threats of fraud prior to them having a significant impact. The fundamental change comes in the fact that instead of relying on post-hoc data aggregation, firms can use AI to monitor real-time data and seamlessly incorporate it into their pricing algorithms.

Going further, AI will even enable firms to use an individual’s health data to tailor their policy to their unique behaviours and characteristics. As the technology advances, insurance companies will gradually shift away from a reliance on ‘risk pools’ and begin to adjust prices in real time based on a constantly updated array of consumer information.

However, AI also offers benefits to the consumer, primarily in the form of making things cheaper overall by reducing administrative costs and the actual process of making a claim. Anyone who’s ever made an insurance claim knows that the process of actually securing a payout against your policy has long been mired in needless complexity and red tape. By automating claims procedures, algorithms could reduce the time it takes to process a complicated claim from a matter of days to a matter of minutes. Ultimately, AI creates efficiencies by streamlining the operations of an insurance firm and reducing the need for large teams of number crunchers and backroom staff.

Things for industry leaders to consider

While AI is gradually ushering in a more dynamic insurance industry, many industry leaders remain apprehensive about the technology’s disruptive potential. Of course, some of this trepidation stems from lingering anxieties about how disruption will affect those with established positions in the industry, but this does not mean insurers aren’t right to adopt a cautious approach.

Above all, it’s important to remember that the purpose of AI is making firms more efficient so they can deliver a higher quality service and ultimately become more profitable. If a tool isn’t helping your firm achieve these goals, then you should consider replacing it with another or leaving the task in question within the remit of a highly-trained broker or actuary.

Ultimately, AI tools are designed to improve, not replace, insurance professionals by allowing them to access additional information and utilise new tools. For instance, while there are products such as Lemonade which use AI to forecast risk and eliminate paperwork from the insurance process, humans will still be required to manage customer relations and make tough judgement calls in marginal situations. Remember that just because you can automate a process, it doesn’t mean you should.

Speaking as someone embedded within the European tech community, I know that most developers are simply enabling firms to improve their service offering but ultimately, this is an ephemeral goal that looks slightly different for each insurer depending on the scale of their size and resources. While it’s true that AI is developing a broader appeal every year, industry leaders should think carefully about the steps they need to take to ensure AI disruption improves their operations.

Of course, the strength of AI lies in its flexibility and as the field matures, I envisage there being tools specifically designed to complement the work of insurance professionals in every facet of their career.

To create a better understanding of how AI can be applied in the insurance industry, Fountech recently released a new insurance white paper which explores how firms might integrate AI into their business. Ultimately, with a proper understanding of AI’s strengths and limitations, industry leaders can begin adapting their firms to the rigours of the new data-driven landscape.

Insurers should think like innovators

In essence, the central role that data mining and risk management play in the insurance industry means that it is almost uniquely ripe for AI disruption. However, it’s important that industry leaders think critically about the impact of AI on their firm over the coming years. While insurance has long been a highly cerebral industry, the coming wave of automation will certainly represent a leap of faith for employees and customers. Consequently, it’s important that senior figures from within the industry work in concert with developers to ensure that new tools don’t have a destabilising impact on the industry. Now is the time for insurance firms to begin playing a more active role in the development of the tools that are going to fundamentally reshape the industry over the next few years.

Nikolas Kairinos – Fountech

Nikolas Kairinos, CEO and Founder, Fountech

Nikolas Kairinos is the CEO and Founder of Fountech.ai – a company specialising in the development and delivery of intelligent AI solutions for businesses and organisations. Nikolas also has over 20 years’ experience supporting software startups around the world as an entrepreneur, investor and advisor, and has also co-founded numerous AI companies.

Click here to download a copy of Fountech’s new whitepaper – Artificial Intelligence in the Insurance Domain.

Kindly shared by Fountech