How is AI changing insurance?

Tried and tested is always the best method, right? Well, not any longer. Today, agile insurers are turning to AI to gain new customers and grow their businesses. Here’s how it can help you.

Knowledge and certainty create security, which is the backbone of insurance. Yet, the way they’ve been used hasn’t changed in centuries. Well, not until recently when AI began to disrupt classical thinking.

Claims processing is one area where artificial intelligence is making a big difference.  By using AI with big data sets, insurers are now able to process claims at incredible speed. Let’s look at a comparison to see how the legacy and AI methods differ.

With motor insurance, the legacy approach involves the tried and tested method of:

  1. Investigation
  2. Loss assessment
  3. Review
  4. Document collection
  5. Loss adjustment
  6. Payment within 30 days

This is a system that works, or at least it did before insurers were able to tap into the power of big data and personalised insurance. By doing that, we can take an agile approach with AI that is far leaner:

  1. Self-assessment via a smartphone app
  2. Big data and AI process the claim and identify risk leakage
  3. Loss assessment takes place in seconds – reducing costs, improving efficiency and boosting client experience
  4. Processing and claims payment can happen within five minutes

That’s a game-changer in terms of process, efficiency and customer satisfaction.

The story so far – how is AI being used in insurance today?

Lemonade was founded in 2015 and valued at $5b in 2021, making it one of the fastest-growing insurance companies ever. They put their growth down to the use of AI.

Policyholder reports a claim via their phone, recording a video to explain what happened. Lemonade then uses AI to analyse the videos for signs of fraud, amongst other data.

Through this approach, AI has helped Lemonade reduce its loss ratio from as high as 368% in Q1 of 2017 to 71% in Q1 of 2021. 

Ageas uses AI to undertake the evaluation of vehicle damage after an accident. They identify what level of damage has occurred and estimate the costs and labour required to repair. 

US insurer Allstate partnered with the Earley Information Science agency to develop a virtual assistant called ABIE. 

ABIE uses natural language processing to process 25,000 inquiries per month, answering common questions from agents.

Cape Analytics harvests satellite image data, runs it through an AI network, then provides insurance companies with detailed information – construction, land use, size, etc. – about homes and properties. 

How can agile companies move ahead of legacy competitors?

The simple answer is through more reliable and competitive rates. 

The combination of AI and big data is a potent one as it allows for hyper-personalisation where policies no longer need to be generic. They can now be suited to an individuals personal history and track record.

“In contrast to traditional insurance companies, which have been data-rich but have customarily relied on actuarial approaches, startup competitors like Lemonade and Traffk are employing machine learning analytics and drawing upon thousands of data elements to provide personalized analysis and drive insurance purchases.” – Randy Bean, author of Fail Fast, Learn Faster: Lessons in Data-Driven Leadership in an Age of Disruption, Big Data, and AI

How AI can help financial modelling?

We’re living through a world of change – and that’s not even taking COVID into consideration… – where the world is going to look very different quite soon.

Take the motor insurance sector as an example. A 2015 KPMG report predicts a shrink of 60% in the sector when driverless cars become the norm. That’s a massive hit for your bottom line to take. 

And let’s not forget, motor makes up more than 40% of the insurance industry as a whole.

As Mike LaRocca – CEO of State Auto Financial – said, “The power of change is coming, and if we fail to see it, we could be dead too.”

However, through AI, motor insurance’s loss ratio will drop sharply with risk concentrated on the AI algorithm and other aspects, such as IoT – Internet of Things – and other hardware.

“Technologies will drive industry transformation and upgrading, which will reconstruct existing insurance processes. It will also optimise and innovate products to provide a better service experience.” – Zhu You Gang, senior vice president of Ping An Property & Casualty Insurance.

Want to find out more?

AI is disrupting the insurance sector and changing the future of underwriting. If you want to go deeper and find out how Nuon can help you, get in touch with one of our insurance AI experts today.

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