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AI – the new magic in insurance

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(By Navdeep Arora)

Artificial Intelligence (AI) is revolutionising different industry sectors through unprecedented improvements in accuracy, speed, and cost of doing business.  Indeed, AI has become a buzzword in the Insurance sector.  Whilst the improvements so far have come from tailoring products to the customers, early fraud detection, and automation in underwriting and claims management for simple insurance products like term life, personal accident, auto and home insurance, the magic of AI is here to stay and transform the role insurance plays in our lives as the insurance sector continues to adopt and refine various AI related capabilities to meet our needs.

AI technology has progressed immensely over the last few years and insurers are embracing its many facets from natural language processing, computer vision technology, machine learning and neural networks to robotic process automation to empower agents, brokers and employees to enhance customer experience by providing personalized services such as individual risk-based underwriting processes and faster claim settlement.  The magic of AI will revolutionise four core capabilities that underlie the insurance value chain.

First of all, it will reduce the asymmetry of information that exists between the insurers and the insurers. Historically, insurers tried to extract the maximum amount of information through questionnaires, observations, demographic statistics, and claims losses to conduct actuarial analysis and rationalise future underwriting and pricing decisions.  Insurers are already using AI to contextualise our needs and risks based on more accurate and real-time data from multiple external sources that have now become available in addition to historical losses, and will continue to evolve to futurise it by being able to predict our behavioural patterns.  According to Cisco, 500 billion sensory devices with 4 -5 signals each will be connected to the IoT by 2030, which implies about 250 sensory data points per person on average.  This is enabling insurers to offer on-demand, pay as you use policies that are tailored to our individual needs and risk profiles at much lower costs.  Laka, a UK based insurance start-up is using AI to provide tailored insurance policies at 20 to 30 percent lower costs to bikers and e-bikers, a mobility trend that is spiking with the need for social distancing in the post-Covid economy.  Second, AI is enabling insurers to help mitigate and prevent risks and adverse events, in addition to traditional protection.  In the health insurance sector, insurers like Aditya Birla Health Insurance are using wearables such as fitness trackers and heart rate monitors to collect data and monitor their health needs and thus provide them with the best health insurance coverage options. Insurtech start-ups like MariaHealth, and Collective Health are compelling examples of companies that us machine learning to maintain an AI-powered profile of its members to identify risks and provide appropriate healthcare resources to them. Instead of relying on the basic information about the vehicle and driver to craft insurance policy, insurers in Car insurance sector are working with innovative start-ups like Bangalore-based Gypsee in using telematics to get real-time driving data from vehicles to predict driving behaviours, prevent accidents, and incentivise safe drivers. Likewise, insurers are working with claims technology providers like Munich-based MotionsCloud to make use of AI models based on Computer vision, the science of enabling machines to extract meaning and context from visual data, to assess vehicle and property damage and associated repair costs. MotionsCloud enables policyholders to report the event by taking pictures of their damaged car or property and submit it to an AI automated damage estimator which assesses the damage and ensures quick and seamless settlement of a claim, thus making it hassle-free for the insurer as well as the insured.  Most insurers are already using machine learning to detect and prevent fraud. The humongous amount of data available today is used to train a machine learning algorithm in analysing patterns and separating legitimate claims from the fraudulent ones.

The third core capability is customer service that is on-demand and available 24/7 across all channels such as online, mobile and telephone, to help improve customer access, acquisition and retention. Advances in Natural Language Processing (NLP) have made it easy for insurers to extract information from unstructured data available in the form of textual data from documents, chat log, emails, and social media.  Insurtech start-ups like Dubai-based Democrance are using NLP to help insurers to pro-actively service the needs of their policyholders.  UK-based Digital Fineprint is enabling improved customer acquisition and retention through AI based analysis of social-media data. To further enhance customer experience, customer service chatbots are also being introduced by several insurers like AXA, Lemonade, and MetLife.  A chatbot is a digital service available 24/7 to give basic advice and address common inquiries of policyholders.

Fourth, AI is enabling insurers to improve the efficiency of their operations through automation in core processes of data management, customer service, underwriting, claims and reinsurance placement, as well as in administrative processes.  This will continue to drive lower costs, greater competition, and better products and prices for consumers.

AI brings with it new challenges and opportunities for the insurance sector.  On the one hand, it is the need to look inwards and educate empower, upskill and train insurance professionals to work with data and AI related capabilities, whilst addressing cultural, behavioural and mind-sets related obstacles that might be holding them back.  On the other hand, it is the need to look outwards to proactively identify new and emerging risks, data, and opportunities arising from the current Covid pandemic, climate change, global supply chains, mobility, and the growing GIG economy.

Whilst AI in insurance is still in its early stages and we are yet to realise the full potential of its magic, there is strong consensus that the opportunities it promises to unveil are indeed compelling and unprecedented.

(The author is an independent insurance consultant)

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