False motor insurance claims contribute to huge losses for insurers – an estimated $1.5 billion in the UK alone last year. These costs would ordinarily have been passed on to customers in the form of higher premiums. Yet, premiums for many of the most at-risk drivers actually dropped. That’s largely thanks to the use of data-gathering technology, so-called telematics, that monitor motorists’ road behavior and incentivizes them to drive better in reward for cheaper insurance.
Such devices and the benefits they generate are the most visible demonstration of how data-driven technology is transforming the centuries-old insurance industry.
But they represent the tip of a disruptive iceberg, driven by the purpose of technology in reshaping the way insurers sell and package products, price risk in order to compete on policy pricing, detect fraud, and automate processes to reduce costs.
Artificial intelligence (AI) technologies such as machine learning, deep learning, and natural language processing are offering carriers the ability to process, analyze and interpret vast swathes of data gathered every second by billions of telematics, smartphones and other monitoring devices.
It’s helping build an ever-more accurate understanding of everything from individuals’ personal behavior and macroeconomic trends to geological threats and geopolitical flashpoints. This is enabling insurers to better assess future events and reduce or actively manage their own exposure to claims risks.
Companies are already demonstrating the benefits of AI to their customers and their own bottom lines – some of them in surprising and imaginative ways.
1. Leveraging innovations to improve underwriting
Artificial intelligence is set to transform underwriting as insurance providers, with greater access to intelligent insights from multiple data sources, are better able to predict losses, offer customized products and advice, and mitigate risks.
Insurance underwriters are integrating technologies and innovations such as drones to improve surveillance, product pricing, and estimation. AI is enabling the integration, management, and gleaning of insights from this data to drive more accurate and faster underwriting.
Until recently, life insurance applicants had to complete a series of forms that asked them about almost every aspect of their life. But what if all they needed to do was take a selfie?
Legal & General it’s trialling a product in the US that enables customers to buy life coverage by sending a snap of their face. The company’s AI-based SelfieQuote app will analyze the photograph to estimate such things as the applicant’s age, sex, and body mass index before offering a quote based on its findings.
L&G says an app is an engagement tool that helps customers get the protection they need. It also reduces the time advisers spend on administration and frees them to spend more time with clients.
Gore Mutual, Canadian’s oldest accident insurer, is using AI to speed up and improve underwriting decisions. Applying machine learning algorithms across all the company’s data will deliver informed insights to underpin risk assessments.
The 180-year-old insurer estimates that underwriters currently access only 20% of its available data. Using AI will help them make better decisions faster and spend more time nurturing relationships with insurance brokers and customers.
2. Promoting health, safety, and well-being with smarter behavioral pricing
We’ve seen how the use of telematics can establish more accurate pricing for individual drivers – and incentivize motorists to reduce the costs of their policies – but what about the same sort of customization for homes or even pets?
RSA’s smart-home sensors provide data on a host of household functions that can influence the cost of insurance coverage. From closely watching the performance of security devices, providing alerts for flood or fire and gauging energy use, among other factors, the technology can construct a customized assessment of a home’s risk and price insurance accordingly.
For pets, wearable devices under RSA’s Waggle Pets can track health markers, nutrition levels, and even bowel movements to establish fitness and lifestyle patterns.
3. Transforming customer onboarding and experience
Lemonade pioneered the use of app-based AI to price renters’ insurance when it launched in New York. But it also showed how technology can make buying coverage easy and fun for customers and almost cost-free for insurers.
Applicants buy products and make claims via a simple step-by-step process on Lemonade’s mobile device app, and its technology then processes the data quickly enough to offer quotes in seconds and settle claims in minutes. By using AI to make assessments and handle claims, instead of humans, Lemonade has substantially cut the cost of home insurance.
An AI and app-only strategy has also enabled virtual broker Insurify to cut costs and offer discounted coverage on its comparison platform.
4. Efficient claims management
Allianz is reducing the cost of handling insurance claims and cutting the time it takes to settle them with the application of technology.
By automating parts of the process, it’s seen settlement times fall by 20%, freeing up resources that can be better deployed elsewhere. Its AI network is also testing deep learning platforms that can assess a claim for vehicle damage by analyzing millions of images of other cars.
5. Smarter and faster fraud detection and prevention
AI is so powerful that it can identify the faintest patterns in the largest of datasets in ways that were previously impossible. This is going to be very helpful in the fight against false insurance claims, with platforms able to search for indications of fraud in declarations.
Generali’s Analytics Solutions Centre, for instance, is testing image recognition technology to identify fraud markers that would be impossible to detect with the human eye.
The purpose of technology: Benefits to insurers and the insured
The transformation of the once tradition-bound insurance industry demonstrates the power of AI to disrupt all corners of the financial services sector. Its lightning-speed processing capabilities make it possible for insurers to analyze and interpret data in ways once thought unimaginable.
That’s providing them the opportunity to streamline and cut the costs of their own activities, as well as improve the customer experience and reduce prices.