Artificial Intelligence and the Future of the Insurance Industry

11/02/2021 198

There is no doubt that new technologies and digital platforms are changing the insurance industry, changing the value chain from underwriting and customer service to claims. The combination of different technologies (automation, artificial intelligence, internet of things, big data, and blockchain) is allowing the development of innovative solutions that create value for customers and insurance companies.

In a McKinsey & Company article, Ramnath Balasubramanian and his colleagues outlined some future scenarios for customer behavior and smart solutions in dealing with insurance products and services. For example, virtual assistants in the vehicle that propose alternative routes with lower accident risks, as well as calculated risk premium adjustments. Also, life insurance policies that are adjusted based on how a person lives, and with small periodic increases or decreases, with alerts of charges in your bank account. All are based on risk behaviors.

A fascinating future, and perhaps also disturbing. A transformation process that will be evolutionary and that will go from a model based on “detect, analyze and repair” to a model of “prediction and prevention”.

A not too distant future, if we see it from the perspective of the technologies that are already available. For example,, a leading company in Artificial Intelligence services, thanks to tools such as its predictive engine and algorithms, has the capacity to apply many of its functionalities to the insurance sector.

The combination of different technologies like automation, AI or Big Data are enabling the development of innovative solutions.

For example, digital assistants so that the company can anticipate the needs of customers and based on their behaviors offer cross-selling products such as leisure trips or training courses. Also, the application of artificial intelligence to predict defaults, or chatbots to resolve doubts and improve the customer experience.

In this article, I would like to present and briefly describe some of the ventures that I have had the opportunity to study and analyze as part of the new Insurtech Community Hub and its academy, in which I am fortunate to participate. These examples are revolutionizing the insurance sector today and allow us to understand how Artificial Intelligence will progressively redesign insurance business models. These companies are Tractable, Aerobotics, Lapetus, and Friss.

Tractable: it is an initiative that has recently won the award for the best startup in the UK. Tractable uses Artificial Intelligence for accidents and recovery. Currently, it is primarily focused on vehicle accidents, but there is the possibility that it will grow to cover natural disasters as well. Tractable’s AI was trained with many millions of actual images of accidents and repair operations, and it is able to understand car damage as a human appraiser would. Tractable allows you to speed up claims, and eliminate errors that can translate into higher costs.

Aerobotics: is an agricultural technology company based in Cape Town that combines aerial images obtained from satellites and drones with its machine learning algorithms to provide early problem detection services to farmers, helping them to monitor their crops, receive early alerts potential risks, and optimize returns. The provision of data to insurance companies is presented as one of the applications with the greatest potential outside the agricultural industry.

Lapetus: is an American artificial intelligence company that focuses on people’s faces (facial recognition) as a biomarker of aging. Lapetus is developing analytical solutions for life insurance, life expectancy, and wealth management that use the face as a biomarker of aging. Lapetus owes its name to the Greek god of mortality.

Friss: is an artificial intelligence startup that provides an accurate estimate of fraud and risks with the help of expert rules, profiles, predictive models, text mining and link analysis, along with all the information available in more than 100 sources of external data. Based on this estimation, a risk score (score) is given. The higher the score, the greater the potential risk of fraud.

Fraud in the insurance industry is a serious problem. The payment of fraudulent claims has a negative effect on the loss ratio and insurance premiums, which results in a disadvantage for everyone.

In addition, investigating “false positives” requires a great deal of time and unnecessary costs. The contribution of artificial intelligence in reducing fraud is a direct generation of value for all stakeholders.

As a final reflection, it is important to note that insurance companies must develop a long-term, progressive strategic and transformation plan that affects their business models, and organizational models, and that allows them to compete in this new era of artificial intelligence.

Some companies in the sector have already begun to adopt new innovative approaches such as developing innovation ecosystems, acquiring insurtech companies, and/or creating alliances with academic institutions, prestigious consultancies, or research centers. Developing internal digital capabilities will be key to success.