Here’s How AI Will Remake Insurance As We Know It
Mary Shelley’s famed work Frankenstein is one of the many novels that utilize as a storytelling device the idea of an artificial being that is capable of thought. These days, artificial intelligence (AI) is no longer confined to works of fiction; the technology is being actively researched and developed so that it can enhance the speed and efficiency of human efforts in a wide variety of industries. Artificial intelligence is a wide topic, and research on this subject can be focused on machine and deep learning, speech and visual recognition, and natural language processing. The bottom line is that an AI-enabled system uses technology and algorithms to analyze data, determine concepts and relationships, and use the patterns it has extracted to learn on its own.
Key players in the banking, financial services, and insurance (BFSI) industry have shown great interest in adopting AI to augment their processes as well as provide assistance in designing, implementing, and improving products that suit the ever-changing needs of their clients. Many insurance companies, particularly those that are keen on implementing digital transformation within their organizations, have started adopting tools and systems that incorporate artificial intelligence. It’s expected that a core insurance system that makes use of this technology will reshape the status quo, primarily by providing early-adopters numerous benefits in these areas:
Pricing and Underwriting
Generally speaking, underwriting is the practice by which a party or entity (usually referred to as the insurer) agrees to assume responsibility on behalf of another party in case of a particular event. The insurer agrees to do this in exchange for a fee. Using traditional methods, the process of determining pricing and underwriting means coming up with assumptions about particular segments of human populations and determining whether certain events are more or less likely to occur. This then affects the pricing of the underwriter’s fee. If an event is considered unlikely to transpire, the insurer’s fee will decrease, but if it’s considered probable, the fee usually increases.
Unfortunately, in the past, the process of determining the probability of a given event meant a lot of guesswork, estimates, and manual number-crunching. The underwriting team would then have to examine whether these derived probabilities held water. If they didn’t, it was back to the drawing board.
The assistance of digital technology and artificial intelligence, however, drastically changes this testing process. These tools can be used to reduce the time and resources needed to get to know the needs of different demographics, test how they respond to newly designed products in real-time, and receive analytical feedback as soon as possible. Automation and data analytics, combined with AI, can make it much easier and quicker for insurance companies to determine if their assumptions are correct or not, how consumers respond to changes, the effect of the new product on their bottom line, and the next steps that they can take to improve the product that they will be rolling out.
Sales and Product Offering
It’s tricky to create insurance products that have a personal appeal and can be used by different groups of people and entities. In recent years and with assistance from digital technology, insurance providers have found a way around this challenge by offering modular insurance products that clients—individual and corporate alike—can put together to create a set of policies that address their particular needs.
Such an option would be difficult to pull off if the company was still dependent on papers and physical documents, but the development of mobile applications and e-commerce websites has made it much easier for providers to offer different modular products that appeal to a wide range of customers. The customers can simply choose the specific policies and riders that they want to purchase from an app or website. Providing the right pricing and cost for such an arrangement may be a big issue for more traditional companies, but a more forward-looking insurance provider will be able to take care of the arrangements in a snap using AI.
Claims and Costs
One of the biggest challenges of offering modular, highly buildable insurance products to the market is determining the cost and processing the claim of each customer. The assistance of AI can make this task much easier, as the system can analyze how customers use the insurance products that they’ve purchased. The system can then utilize this data to come up with more efficient workflows for the rest of the cost and claims team.
Responding to claims can also be automated, and processing the claims can become more streamlined despite the seemingly complicated groupings of modular insurance products. This will enable the insurance provider to respond to the needs of their customers in a timely manner, improving the level of customer satisfaction that the company can offer.
Fraud Detection and Compliance
Automating the aforementioned aspects of providing insurance services not only impacts the company’s products and customers; it can also help streamline the company’s compliance and reporting processes. A core insurance system that uses AI and automation is capable of validating identities, tracing data, and sifting through transactions that breach regulations. This, in turn, will make it much easier for compliance and regulatory reporting teams to detect suspicious activities, compile evidence that will help them build their case, and adhere to the laws that govern their operations.
Considering all the benefits that come with adopting AI and automation, insurance providers would do well to take the next step and see how they can use these technologies to set their companies apart from the competition.