While artificial intelligence raises privacy concerns, it can make insurance more affordable and user-friendly for some individuals.
Your insurance company might know more about you than you think.
Today’s technology—smart-home devices, drone images, fitness trackers, social media posts, and telematics programs that monitor your driving habits—enables insurers to compile a comprehensive picture of your behavior.
Your consent isn’t always needed. Many details about your house, car, and neighborhood are public records. Data brokers also collect and sell information about your activities, such as the stores you visit, your online clicks, and the location of your mobile phone.
For humans, processing all this data is overwhelming. However, artificial intelligence’s data interpretation could revolutionize purchasing an insurance policy and filing a claim. While insurers grapple with fairness and privacy issues, some individuals may find it harder to obtain coverage. Conversely, others will benefit from lower rates, faster applications, and more straightforward claims.
1. Faster Insurance Applications
As insurance companies adopt AI technology, customers could experience a significantly streamlined application process.
Peter Flynn, head of personal lines for the Americas at insurance consulting firm Xceedance, says insurers may dramatically reduce the number of questions asked in a home insurance application.
“In the future, they”might only ask five questions,” Flynn notes. “But “hey might gath”r 5,000 additional data points and interpret those 5,000 data points alongside the five answers from the applicant.”
Chicago-based Kin I”surance, for instance, collects thousands of data points and prefills” home insurance” nce applicationsions with property details like square footage, foundation type, and the number of bathrooms.
A similar shift is happening in life insurance underwriting, which traditionally requires a medical exam and a health and lifestyle questionnaire. As AI models improve, more carriers offer accelerated underwriting—quickly issuing policies to low-risk customers based on digital medical records and other data while flagging higher-risk applicants for conventional underwriting.
“You can provide a small amount of information, and they can return a rate without someone needing to visit your house to take blood,” says David Embry, CEO of o” line insurance broker Mylo.
To ensure the most accurate rate, ensure your records are correct and current before starting a life insurance application. It’s also helpful to have support. It’s documents, like a summary from your doctor about any medical conditions, ready to go.
2. More Personalized Insurance Rates
Low-risk customers can save money as insurers use data to create increasingly personalized profiles of their users.
The auto insurance industry is leading this trend with telematics programs that monitor factors like speed, braking patterns, and mileage, enabling insurers to base pricing on driver behavior.
“In an AI-enabled or machine-learn”ng-enabled environment, insurers can gather and interpret vast amounts of data in real-time, making predictions based on individual habits,” Flynn explains.
While low-risk c” customers benefit from this fine-tuned prediction model, a 2020 Organization for Economic Cooperation and Development (OECD) report warns of the potential downside. Segmenting customers into smaller risk pools could effectively price some applicants out of insurance.
For drivers, comparing car insurance quotes from companies is wise. Insurers don’t all use the same data sources and weigh down the factors differently.
3. Simpler Claims, and Maybe Fewer of Them
Filing an insurance claim can be stressful. However, insurers’ use of AI could make the process smoother for customers, leading to faster decisions and payouts.
AI can help insurers identify the most urgent claims, reconstruct accident scenes, analyze medical records, and flag cases for signs of fraud, according to a 2023 report by research firm Everest Group and professional services company Ernst & Young. The report states that making claims more efficient is a priority for more than half of the property and casualty insurers surveyed.
New York-based insurer Lemonade claims that its AI-based fraud detection allows about 40% of its claims to be resolved within moments.
AI could even help prevent losses before a claim is necessary, shifting from a “detect and repair” to a “predict and prevent” mod”l. For example, d”ta fro” smart-home devices” could automatically trigger intervention if a sensor detects early warning signs of a leak or a frozen pipe.
AI can also provide feedback to drivers, helping them adjust their behavior. Programs like Allstate’s Drivewise reward those who avoid risky Allstate speeding, hard braking, or using a phone while driving.
However, as the insurance industry integrates AI, concerns about cybersecurity, privacy, and potential discrimination based on characteristics like race or gender arise.
The National Association of Insurance Commissioners issued guidelines in December 2023, encouraging insurers to correct errors in AI models and avoid bias. However, each state creates its rules and regulations, which remain in its early stages.
Oversight will evolve, Flynn says, “but I’ll bet you the technology evolves fas” er tI’llthe regulation.”
Enhanced Risk Management Predictions
Artificial intelligence (AI) can significantly strengthen insurers’ core competency: managing and pricinsurers’ Take climate change, for instance— as historical weather patterns shift and extreme events become more frequent, AI models predict emerging trends. These models thrive on data. Please provide them with extensive climate data, including geography, temperature, other weather variables, and vast amounts of claims data from millions of policies. AI tools can also deliver location-specific predictive analyses.
AI enables superior risk management, empowering organizations to anticipate significant changes reshaping property,y, and casualty insurance underwriting, among other sectors. While not a crystal ball, AI offers firms a deeper understanding of one of the most potent forces shaping the planet’s future: climate change. Finally, AI can elevate the capabilities of HR platforms, assisting leaders in enhancing workforce predictions. Organizations can train customized large language models on datasets detailing employee skill self-assessments, required skills for specific roles, team dynamics, turnover rates, and vacancies. HR leaders can then monitor workforce skill trends, identify deficits, prioritize needs, and forecast skills gaps. With AI’s assistance, leaders can make informed decisions about their future hiring requirements.
Recommendations: From Policies to Organizational Management
AI’s capabilities extend beyond predicting and tracking risks; as AI models become more sophisticated, they can provide actionable recommendations based on predictions and analyses to support insurers and customers. For instance, AI can offer product and policy recommendations tailored to climate-change scenarios for specific geographic regions, such as proposing a three-month flood insurance policy ahead of hurricane season.
Within organizations, AI can aid leaders in determining recruiting priorities and crafting upskilling strategies aligned with strategic objectives. AI can suggest knowledge-capture initiatives based on recent turnover and retirement-based attrition trends.
Indeed, AI recommendations must undergo review, validation, and potential refinement. Humans must retain control. However, with proper oversight, AI can enable insurers to proactively manage customer, market, and workforce risks rather than merely reacting to circumstances.
AI will fuel an organization’s innovation engine, empowering organizationsin their role as value creators and customer advisors.
Improved Employee Experience
Fostering a culture of innovation is imperative for the workforce, particularly in the insurance industry, where many veterans are nearing retirement. By 2030, the industry will face any sector’s most significant worker shortage. However, younger generations are not inclined to work with outdated technology. Fortunately, insurers recognize this: IDC reports that technology ranks as the top priority for insurance organizations globally, closely followed by profitability and customer satisfaction.
To attract the next generation of talent, the industry must enhance the employee experience. AI can contribute in two significant ways. Firstly, automating IT processes can streamline operations, allowing employees to focus more on strategic and fulfilling work. Secondly, AI can directly support and enhance the employee experience by offering faster analytics capabilities, reducing time to insights, and expediting decision-making processes.
This dual-value proposition drives IT investments in the insurance sector: nearly eight in ten insurance leaders surveyed by IDC desire more streamlined IT processes to simplify business insights discovery for more agile decision-making. Additionally, 34% of IT initiatives aim to create a more intuitive user experience across functional areas, enhancing employee satisfaction and agility.
AI will be pivotal in driving innovation, workforce retention, and recruitment. This presents ample reason to be optimistic about the industry’s future.
Frequently Asked Question
How could AI transform the insurance policy process?
AI has the potential to streamline the insurance policy process by drastically reducing the number of questions asked during application. Instead of lengthy questionnaires, insurers may ask only a handful of questions while gathering and analyzing thousands of additional data points to assess risk more accurately.
What are some examples of AI-driven changes in insurance underwriting?
In insurance underwriting, AI is revolutionizing the assessment of risk factors. For instance, in home insurance, companies like Kin Insurance use AI to collect and prefill application details based on extensive data poi,hsuchy size, foundation type, and more. Similarly, in life insurance, AI enables accelerated underwriting, which relies on digital medical records and other data to swiftly issue policies to low-risk individuals.
How could AI lead to more personalized insurance rates?
AI empowers insurers to create highly personalized profiles of their customers, leading to more tailored insurance rates. Telematics programs in auto insurance monitor driver behavior like speed and braking patterns, allowing insurers to adjust pricing accordingly. While this benefits low-risk customers, there are concerns about the potential exclusion of certain applicants based on risk segmentation.
How might AI simplify insurance claims processing?
AI can streamline the claims process by identifying urgent claims, reconstructing accident scenes, analyzing medical records, and detecting potential fraud—all with greater efficiency. This expedites decision-making and enhances customer experience by ensuring faster payouts.
What are the potential risks associated with AI integration in insurance?
Despite its benefits, the integration of AI in insurance comes with its own set of challenges. Concerns include cybersecurity threats, privacy issues, and AI models’ risk of discriminating based on race or gender. Regulatory oversight is essential to address these risks and ensure fair and transparent use of AI in the insurance industry.
Conclusion
The transformative potential of AI in the insurance industry is immense. From simplifying the insurance policy process to revolutionizing underwriting and claims processing, AI promises to enhance efficiency, accuracy, and customer experience. By leveraging vast data and advanced analytics, insurers can offer more personalized rates, expedite decision-making, and proactively manage risks. However, as with any technological advancement, there are challenges, including cybersecurity, privacy concerns, and the risk of unintended discrimination.