AI and Machine Learning are usually at the forefront of everyone's mind when they think of FinTech, developments are constantly being made and technology improved. Mark Broadhurst, Vice President and Head of Insurance EMEA of Intellect SEEC discusses how AI is changing the insurance game ahead of InsurTech Rising.
Artificial Intelligence (AI) has come a long way in a relatively short period of time, since Alan Turing’s Enigma machine successfully decoded Nazi Germany communications in WWII. This rate of technological advancement is especially startling when one considers that multiple types of AI technology have been established in this time period, from machine learning and deep learning to natural language processing.
AI-based technologies have revolutionised everything we do, from how we watch TV to how we bank, personalising our everyday experiences. Insurance has been the sleeping giant of the industry sectors in this respect, but finally appears to have awoken with real momentum.
The Future is Here
The process of buying insurance has remained untouched for generations, but finally the use of AI is radically altering how insurance is distributed.
Despite the addition of a number of premium data sources to the underwriting process, most insurers still rely on a bank of standard questions. This antiquated process means insurers remain unable to assess the full risk profile, and are left looking through a proverbial keyhole when writing new policies.
This is no longer the case as AI has enabled insurers to consider an exponential amount of data from structured and unstructured sources, providing a much deeper, relevant and more accurate understanding of each risk.
Being able to connect the dots is only the beginning. With AI, insurers can observe data, identify patterns and form underwriting theories —a much more effective process than today’s approach, where underwriters first form theories, then observe data and (hopefully) confirm their thinking. As a result, AI allows insurers to make decisions based on future risk propensity, not on historical insight and guess work.
Before Accidents Happen
For many policyholders, purchasing an insurance policy is a necessary requirement. It’s an annual transaction between a policyholder and an insurer that is designed to provide financial protection in the event of an accident or other type of loss. Outside of purchasing their policy, most policyholders have limited or no interactions with their insurer.
The deployment of AI in the insurance industry will transform the profitability of those who deploy it successfully.
AI is finally allowing insurers to truly embrace the nature of customer centricity, something that the industry has failed to achieve. With the use of current telematics capabilities, an insurer can see how many miles a customer drives to work, how frequently they use the car and assess driving habits such as braking, acceleration and cornering, not to mention their speed. This is just one example from the treasure trove of data that is now available to insurers. Furthermore, customers seem to be embracing the opportunity to share their data, as a recent study from Bain found that more than 70% of UK insurance customers are “open sharers” or “selective sharers” of personal, financial, health or other data information with insurers.
The real benefit to insurers comes not from having this data, but from being able to synthesise and act upon it. Thanks to AI, insurers can seamlessly analyse big data, identify trends and patterns that commonly lead to accident and injury and alert customers employing similar practices that they are heading down an unsafe path. By coupling the traditional role of insurance with actionable risk mitigation insights, insurers can begin to build partnerships with their customers, which will help to drive customer loyalty and retention.
The Financial Benefits
The deployment of AI in the insurance industry will transform the profitability of those who deploy it successfully. Those insurers that overlook this transformational change will be left lagging behind in the market. Initial estimates show that early adopters of AI technology can expect to see a 10% growth in premiums, an expense ratio of 5% and a 10% reduction in loss ratio. The role of the Chief Underwriting Officer will once again become instrumental in the success of the business!