The term Artificial Intelligence (AI) has been used far and wide but what is it and how will it impact the insurance sector now and in the future?
AI sometimes called machine intelligence, is intelligence demonstrated by machines, in contrast to the natural intelligence displayed by humans and animals.
AI today is properly known as narrow AI (or weak AI), in that it is designed to perform a narrow task (e.g. only facial recognition or only internet searches or only driving a car). However, the long-term goal of many researchers is to create general AI (AGI or strong AI). While narrow AI may outperform humans at whatever its specific task is, like playing chess or solving equations, AGI would outperform humans at nearly every cognitive task.
All too often is AI incorrectly interchanged with “machine learning”. This is in part because AI is not one technology. It is, in fact, a broad field constituted of many disciplines, ranging from robotics to machine learning.
Strong AI is likely to affect the entire landscape of insurance as we know it. Change is here; more is coming. Today, the insurance market is dominated by massive national brands and legacy product lines that haven’t substantially evolved in decades. This kind of stagnations has historically suggested that it is an industry ripe to be disrupted- see the transportation industry and the rise of Uber.
Insurance is an industry that venture capitalists consider so ripe for disruption that new Insurtech entrants such as Lemonade can raise one of the largest seed rounds in history simply by talking. A number of industry leaders agree that the revolution in autonomous vehicles poses serious and fundamental risks to the traditional insurance business model.
A recent report predicts that “radically safer” vehicles, including driverless technology, will shrink the car insurance industry by a whopping 60% over the next 25 years. However, the revolution in autonomous vehicles also presents opportunities for insurers in three key areas:
- Cyber security
- Product liability insurance for sensors and/or algorithms
- Insuring against infrastructure problems
Insurance trends that business leaders should know about
While there is potential for major disruption within the car insurance market there are wider and more general trends that all insurance business leaders should understand. There are three key ways that AI will drive savings for insurance by plugging into existing transformations within the insurance industry:
Behavioural Policy Pricing:
Ubiquitous Internet of Things (IoT) sensors will provide personalised data to pricing platforms, allowing safer drivers to pay less for car insurance (known as usage-based insurance) and people with healthier lifestyles to pay less for health insurance
Customer Experience & Coverage Personalisation:
AI will enable a seamless automated buying experience, using chatbots that can pull on customers’ geographic and social data for personalised interactions. Brokers will also allow users to customise cover for specific items and events (known as on-demand insurance)
Faster, Customised Claims Settlement:
Online interfaces and virtual claims adjusters will make it more efficient to settle and pay claims following an accident, while simultaneously decreasing the likelihood of fraud. Customers will also be able to select whose premiums will be used to pay their claims (known as peer-to-peer (P2P) insurance).
Insurance as a global marketplace tends to be associated with public distrust (one Australian poll ranked sex workers as more trusted than the insurance industry), and this may present unique challenges to technology innovations – through AI or otherwise.
Therefore, a key concern introducing new technologies will be in convincing customers that automation isn’t simply a Trojan horse for denying their claims — a worry that 60% of consumers have expressed about purchasing coverage via chatbot, according to a recent survey by Vertafore.