By: Eric Truntz, Senior Principal
Artificial intelligence related efforts are on the rise, in seemingly all industries. In financial services, AI is being commissioned with increasingly critical accountabilities in making data-driven decisions on what in and when to invest but also how much to invest. The marketing industry is making targeted communications more relevant than ever, with tools and automation that rely increasingly on AI. And the healthcare industry is developing AI tools that could ultimately save lives by speeding up detection and reducing human error.
The insurance industry too will be impacted by advancements in AI. From Vanguard and Charles Schwab employing robo-advisors for investment management, to Chinese search giant Baidu applying AI to insurance and loan underwriting, experimentation and implementation are very much underway. Combine competition with customer demand, and insurers realize they too must seek ways to harness artificial intelligence and bring cost-savings and a better customer experience to their own offerings.
Exactly how AI will reshape the industry is still being discovered. However, several key features stand out for their ability to expand revenue, increase efficiency, and maximize customer experience.
Three ways AI is changing the insurance industry
1. Usage-based insurance
The Internet of Things, and customers’ increasing acceptance of these interactive products into their lives, provide companies with real-time data on policyholders’ lifestyle choices. Where before they relied on proxy data, insurers can now use source data to better assess individual levels of risk and offer custom solutions with a price to match.
For example, a home insurer offers smart-home monitoring and emergency assistance with its policies. Other insurers provide telematics sensors for cars or wearables for customers themselves. All of these technologies communicate risk in behavior back to the carriers, which is then reflected in the price of policies. Less risky customers – i.e. those who drive slower, exercise regularly, or install gas detectors in their homes – pay less for their insurance.
Are customers willing to install or wear these devices? A study by J.D. Power found that while not quite a fifth of survey participants expressed hesitancy, the majority are willing to accept monitoring technology in exchange for cost-savings.
2. Chatbots to help sell insurance and settle claims
Chatbots use geographic and social data to provide customers with highly personal service as they buy insurance. Chatbots have the added advantages of both freeing up resources for the company and allow the buying experience to be largely if not solely online, which most customers now prefer.
The chatbots can also be accessed through messaging apps customers already have installed on their phones, for an even more seamless experience.
Even more important to customers, chatbots streamline and speed up the claims process. Instead of a single claim being touched by multiple employees or sitting on a desk while one of those employees is busy or on vacation, AI allows for a no-touch claims process in which claims are reported, damage captured, systems audited, and customers communicated with – without human intervention or red tape. The result is a drastically lower time-to-settle metric and a better customer experience.
3. Machine learning to fight fraud
If customers are most concerned with settling their claims, insurance companies are most concerned with preventing fraud. In the past, it was difficult to transfer data between parties and the insurance companies to verify a customer’s identity and the facts of an accident. Thanks to machine learning, systems can swiftly process vast quantities of information on policyholders, detecting identity theft and other fraudulent claims activity in a fraction of the time.
Problems companies may encounter with AI
One of the most obvious challenges of weaving AI into the way insurance companies work is trust. Issues of trust between customers and insurers already exist, so it will be important to ensure artificial intelligence is viewed as a faster track to a claim being settled, rather than a barrier.
Another problem comes with sensors, which can be susceptible to hacking. Companies must be willing to invest in the technology, and also in securing it.
Finally, some executives are too invested in legacy systems and must be convinced that modernizing or replacing these systems to incorporate AI can have a great impact on both customers’ satisfaction and the company’s performance.
The bottom line
Decision makers in the insurance industry will need to carefully plan for such significant changes to their companies as a technology like AI will surely bring. They must begin testing and implementing the technology, because the resulting cost-savings, customer demand, and competition, are too great to overlook.