The insurance industry has had a rough few years. It has been slammed with claims from a series of major hurricanes (so much so that a growing number of insurers are withdrawing from the Florida market) and wildfires. Valuations of vehicles have soared. And the COVID-19 pandemic resulted in life insurance companies paying out over $90 billion in 2020 alone.
To help overcome those losses and better analyze risk, a growing number of insurers are thinking about turning to artificial intelligence as part of their underwriting process. And it could result in some substantial returns.
One report from Accenture estimates incorporating AI and automation into the underwriting process could result in savings of up to $160 billion over five years as non-core and administrative duties are removed from underwriters’ plates.
The list of possible advantages for insurers is vast. For instance, companies can dig deeper into applicants’ history, using AI to perhaps find a lawsuit or some other flag the underwriting might normally miss. It can also be used to detect fraud and simply reduce human error in the application process. And the explosion in data from connected devices, from our phone to home assistants to cars and fitness trackers, will give these systems a tremendous amount of data that let companies understand their clients significantly better (One World Economic Forum estimate predicts there will be over one trillion connected devices by 2025).
For consumers, AI can expedite the handling of claims and potentially lead to faster settlements.
“By collecting large amounts of historical data, Discriminative AI can be used to make plausibility assessments and ensure quality and uniformity in the adjusting process,” IBM wrote. “Complimentarily, Generative AI will be able to help the adjustor summarize the data and generate a preliminary report.”
It’s AI’s strengths in predicting climate change and natural disasters that could make it most appealing to insurance companies, however. IBM has developed an AI tool that looks for subtle clues that indicate the likelihood of a major storm or wildfire.
For wildfires, the system looks at everything from climate conditions to the amount of brush to assess the risk. The system can even predict where lightning storms could occur as well as the likelihood it will hit the ground and spark a fire.
AI, of course, won’t prevent the disaster, but it would better detect it, giving people more time to prepare and preventing the degree of loss to homeowners and insurance companies.
The hiccup in all of this, of course, is that the insurance industry isn’t one that quickly embraces new technology. It is, by definition, risk-adverse. Only 35% of claims executives surveyed by Accenture said their organizations are “advanced” in their use of AI technology.
That could be changing, though. 65% of insurance companies plan to invest $10 million or more into AI technologies in the next three years. And the ones who begin using it soonest could see some long-term advantages.
“The carriers that adopt AI first will definitely see a massive benefit,” Kumar Dhuvur, co-founder and head of product @ Zesty.ai, an insurance-focused AI company, told McKinsey. “As other carriers cede market share, the forward-thinkers will be able to protect that market share and garner a share of the profits by leveraging models that manage risk better. Obviously, AI is a key enabler. But at the end of the day, it’s all about a better risk-splitting model.”
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