There is understandable excitement over the obvious benefits from the key Artificial Intelligence (AI) trends. They have the potential to completely change the way companies do business. In fact investment in this technology has tripled since 2013, according to a survey by McKinsey & Company .
So, what could this mean for the insurance market? Predictions of new technologies completely disrupting the industry have been somewhat premature, but the potential can not be ignored. Here are three AI trends that could transform the insurance landscape of the future.
AI coupled with Analytics
AI can be coupled with big data analytics to help Insurers improve their understanding of both risk and customer. The amount of data that is produced is simply mind blowing. An article from Tech Startups, How much data do we create every day? reports on the fifth annual infographic ‘Data never sleeps’ from Domo.com. Reportedly we create 2.5 quintillion bytes of data every day.
AI enables us to correlate and understand this staggering amount of data and apply the learnings in a more meaningful manner. a major benefit for the Insurance market is the emergence of behavioural premium pricing. Insurers can price the risk based on real events using data from digital network such as driver telematics, wearables and home sensors.
At a time that we are hearing that customers want to be treated like individuals, personal pricing sounds ideal, but there are downsides. A recent report from ’The Conversation’ titled the pros and cons of insurance companies embracing artificial intelligence ably articulates the challenges. In a world where the industry shifts from reactive insurance to proactive, risk-minimising cover, there is a very real danger of exclusion. This danger has been highlighted still further in an article How do you fight an algorithm you cannot see. There is a growing movement of theorists concerned about algorithmic accountability. Fundamentally how do we have confidence that the decision made by an algorithm is legally non-discriminatory?
AI is also used to automate decisions and activities. The resulting reduction in human intervention can drive efficiency, speed up processes and ultimately deliver cost savings. Decision automation delivers many benefits and some of the giants in the industry are already on board. Only this month comes news that AXA XL partners with AI specialist Expert System on property risk engineering. The new platform automates the processing of site survey reports, freeing time for the risk engineers to concentrate on high impact areas.
But there are also inherent risks with AI. In the report The Rise of Artificial Intelligence: Future Outlook and Emerging Risks, Allianz Global Corporate & Speciality (AGCS) identify both the benefits and the risks. The report identifies five areas of concern, namely software accessibility, safety, accountability and ethics. These will require appropriate risk management strategies and should not detract from the potential wins. Michael Bruch, head of emerging trends at AGCS, said
“There is huge potential for AI to improve the insurance value chain…Initially, it will help automate insurance processes to enable better delivery to our customers. Policies can be issued, and claims processed, faster and more efficiently.”
The article highlighted insurance as one of the early adopters of AI and machine learning due to its large store of data and repetitive processes. Indeed, we looked at the increasing use of automated chatbots in our recent blog The danger of the 24/7 Insurance Revolution. With leading the way comes responsibility. Insurers have a crucial role in minimising, managing, and transferring emerging risks from AI applications. Insurers now need to deal with new exposures such cyberattacks, business interruption, hardware failure and reputational damage.
Arguably the need to recruit the right people will be the most important trend in the AI space this year. Referencing a recent report from KPMG, an article entitled the Top 5 AI jobs for 2019 noted that AI skills dominated the list of the fastest-growing jobs in 2018 and concluded “Companies will scramble to hire full-stack engineers with AI and analytics skills making this one of the hottest careers of 2019.” The report identified the following five AI professionals needed for success:
- AI architect
- AI product manager
- Data scientist
- Software engineer
- AI ethics
Machines and algorithms are predicted to create 133 million new jobs by 2022. This sector is booming. The benefits of enhanced customer experience, efficiencies and cost savings could completely disrupt the insurance industry. But with reward comes risk that needs to be understood and managed effectively. Will the insurance industry get the balance right? Only time will tell.