Abstract
The Insurance industry today is on the brink of a massive revolution as we are witnessing the infusion of innovation and insurance (Insurtech). Data is a force that drives this industry and managing this is where the technology plays a major and efficient role. The role of AI is limitless and is transforming the way insurance business was done. AI helps to provide a business model that aligns with the customers. It has been predicted by the insurance experts that ‘next insurance leaders will use Bots, not Brokers and AI not Actuaries’. We evaluate various methodologies in practice and what the future hold for the same. Looking and analysing various present- day insurtech companies and the ideas behind their workings.How the insurance experts are embracing the changes in the state of not getting left behind as the industry transforms. On how the on-going businesses are coming up with plans to create a new customer centric architecture with the AI support. Finally, we will evaluate the changes that are accelerating in several operation lines; underwriting, servicing, renewals, claims etc. with all the possible things that might go wrong with the use of AI.
Introduction
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” – Buckminster Fuller
Insurance was first practised by the Chinese and Babylonian traders in the 3rd and 2nd millennia BC, respectively. Later in 1680, Edward Lloyd opened a coffee house, which became the forum for those within the shipping industry who wished to insure their cargoes and ships, including those willing to underwrite such ventures leading to the establishment of the insurance market which we all know as the Lloyd’s of London.
In the early years, a basic system for funding voyages to the New World was established. The merchants and companies, at first, would seek funding from venture capitalists.The venture capitalists would then help find people who wanted to be colonists and would purchase provisions for the voyage.The venture capitalists, in exchange,were promised some of the returns from the goods the colonists would produce.
After the voyage was secured by venture capitalists, the merchants and ship owners would hand over a copy of the ship’s cargo at Lloyd’s, so that the investors and underwriters who gathered there could read it. The people interested in taking the risk for a set premium signed at the bottom of the manifest beneath the figure indicating the share of the cargo for which they were taking responsibility (hence, underwriting). With this, a single voyage had multiple underwriters who tried to spread their own risk by taking shares in several different voyages.
Since then insurance has come a long way and has become far more sophisticated, specialized and customer friendly.Over the past few decades, a gradual shift into digitalization has taken place, thus, eliminating tangibility. Businesses have adapted to this prevalent culture and have consciously brought about changes to their functioning structure. The Insurance sector today, contributes 2.9% towards the GDP of India as of 2019 which means a benefaction of $629.7 towards the Indian economy, making it an essential player.
Technology has played a crucial role in the growth of the insurance sector from the concept of roomy offices providing services via direct calls, proposal forms being filled manually, to the digital results of a series of clicks. It is this aspect that has drawn more customers to the domain to check for the best offers in the market.
With this paper we aim to bring forth various such digital developments, mainly focusing on the application of Artificial Intelligence brought about in the General Insurance Sector which has facilitated the functioning of the service providers to a great extent, be it, prudent underwriting, accurately pricing a policy or timely payment of claims.
Artificial Intelligence in the Insurance Sector
“Artificial intelligence (AI) refers to the simulation of human intelligence in machines that are programmed to replicate human intelligence and their actions. The term can also be applied to any machine that exhibits traits associated with a human mind such as learning and problem-solving.”
With the rise of artificial intelligence, which analyses and learns from massive sets of digital information culled from public and private sources, insurers are embracing the technology’s many facets — from machine learning and natural language processing to robotic process automation and audio/video analysis — to provide better products.
Customers, too, are benefitting — from comparative shopping and lightning-quick claims processing; 24/7 service and improved decision management.
AI supports the insurance industry in putting their enormous amounts of data to optimal use. Insurers are using artificial intelligence to craft individualized policies, automate time-consuming back-end processes and provide estimates with greater accuracy to customers all over the world.
As per a survey conducted by Accenture, as on today, 74% of consumers would prefer interacting with modern technology and appreciating the computer-generated system of insurance advice.
Companies who have been quick enough to adopt automation of some aspects of their claims process can experience significant descent in processing time and cost, and a big surge in the quality of the service.
For E.g.: Allstate Business Insurance has recently designedABI, an AI-based virtual assistant application, in partnership with EIS, to furnishAllstate insurance agents seeking information on ABI’s commercial insurance products.
The perfect blend of Machine Learning, IoT sensors and advanced analytics facilitates insurers inidentifying and approaching their prospective clients, studying their real-time needs, developing insight from their profile on risk magnitude, and ultimately creatingcustom-made solutions.
In 2017, AI has shown its substance in various business verticals by rapidly creating controlled, digitally enhanced automated environments for maximum productivity.
Apparently, Insurance companies, especially, have lots to gain from investing in AI-enabled technology which will not only automate the scheduling of executive-level tasks but can also enrich service quality by helping agents make right decisions and irrefutable judgments.
Scope of AI
The insurance industry is on the edge of a tech-driven shift from its current state of “detect and repair” to “predict and prevent,” altering every aspect of the industry in the process.
With the new wave of deep learning techniques, such as convolutional neural networks,artificial intelligence (AI) has the potential to live up to its promise of mimicking the perception,reasoning, learning, and problem solving of the human mind.
The pace of change too, will accelerate, as brokers, consumers, financial intermediaries, insurers, and suppliers become more adept at using advanced technologies to improve decision making and productivity, lower costs, and optimizing the customer experience.
Artificial Intelligence can deliver on industry expectations through machine learning and deep learning paving way for more development in the industry.
As AI becomes more deeply integrated within the industry, carriers must position themselves to respond to the ever-changing business landscape. Insurance executives must understand the factors contributing to this change and the manner in which AI will reshape claims, distribution, and underwriting and pricing so as to build the skills, embrace the emergent technologies, and develop the culture and perspective required to be successful players in the insurance industry of the future.
Importance of AI
Today the global scenario is such that AI will add $13 trillion to the global economy over the next decade and China has emerged as number one, overtaking USA.
AI in the Indian Insurance Industry is a must as are witnessing underwriting losses, growing competition, increasing expectations of customers, increased costs- mainly sales/ service, increase court cases, need to cover all parts of the country, improve productivity per employee, increasing insurance frauds etc.Today, the most valuable asset is not machinery or stock, it is data.
The components of AI that are being used for improved efficiency, are:
- Machine Learning
- Speech Recognition
- Recommendation System
- Image & Video recognition
- Predictive Modelling
- Natural Language Generation
AI is applicable to various business applications like:
- Prudent Underwriting
- Claims Management
- Fraud Detection
- Finance & Banking
- Human Resource Management
- Supply Chain Management
Case Studies on Application of AI in the General Insurance Sector
There have been a lot of discussions on the various advantages that AI would bring to the insurance industry. The whole gig about the insurtech being encompassing to the industry should not just be confined to the discussions, seminars and conferences debating on its various aspects but, to its implementation as well. It is of utmost importance to understand the AI and its applications in order to bring in ease of doing business but, it is equally important to derive it to the practical grounds of its workings. Starting from tapping the opportunities that can be harnessed to finding potential in the idea of innovation and bringing it live, some companies have already placed their foot forward.
The Chinese market has opened up to technology driven insurance and availed the first mover advantage. They have demonstrated their technological soundness at a massive scale by building highly automated insurance platforms that work on a non- traditional approach to insurance fundamentals like, underwriting, pricing and claims. The adaption to technology can be heavy on the costs and regulations front but, the more mature the market is, it will be easier for the business to facilitate smooth working and growth. We shall discuss and analyse some 10 market disrupters in the field of insurtech and look upon the path that they have paved for the others.
A. Lemonade
A company whose founders thought that insurance was not a place to innovate, Lemonade has certainly disrupted the insurance arena with a new foundation. The two main basis of the workings in this company are Artificial Intelligence and Behavioural Economics that have proved to be enough to change the old workings of the industry. Lemonade’s unique model is precisely the tech- focused aspect that was brought in. The results of which were that not only the insurance sector was viewed as attractive but also transformed it from a necessary evil to a social good. The company’s model of working is very innovative and stands on the pillars of transparency and overcoming conflicts of interest. The model comprises of Lemonade Giveback an option where the leftover premiums are donated to charities, that the customers choose themselves. To issue the policy, one can go to the app or website and having done that, the customers are prompted to choose the giveback option,to have options for their left-over premiums. People who choose this clause form a ‘cohort’ invisibly and each group’s (cohort) premiums are facilitated to pay their respective claims. Any money left in such cohorts after paying off the claims is given to a common cause each year by Lemonade. The company does not consider this as a CSR activity rather, believes that the model is to resolve deep distrust that prevails in the insurance sector from years. The company also doesn’t believe in making profits by denying claims and instead believes in paying them faster. The idea is to change the existing abysmal view that is associated with the industry in term of: paperwork, hassle, delayed claims, pending claims etc. to a new and friendly approach to buy insurance with a hassle-free procedure.The company not only works with the motive of creating a digital platform and become tech savvy but also finds it incredible to see the community grow with the trilateral relationship on which it works.
The company has made a bold move by donating shares worth of $20 million to the Lemonade Foundation. The foundation would be further dedicated to harness AI, data, and software that would impact the society in the real world.
B. ZhongAn
ZhongAn is China’s only Insurance Company, which was jointly created by Ping An, Tencent and Alibaba. It deals with Property Insurance and is China’s first that sells all its products online along with handling claims on the same platform. This platform marks the expansion of the country’s internet based financial services co- launched by the internet service and the insurance titans of China. The company being the only one to have an internet insurance license has till now underwritten over 630 million insurance policies and 150 million client’s services in the first year itself. ZhongAn’s idea behind the online platform is based on reshaping the traditional way of doing insurance business by the application of internet thinking from product design to claim servicing.The model believes in lowering the operating and distributing costs and inculcating big data and analytics to ensure accurate product pricing and risk control methodologies making the digital arena more attractive and convenient.
Commenting on the launch of ZhongAn, Peter Tod (President of Insurance Institute of South Africa) says:“These are not traditional insurance players, yet they obviously see an opportunity in insurance. This is significant, considering the distribution challenge in China, where a population of 1.5 billion is spread out across a wide geography. Digital technology would be a good solution to overcome this challenge if they can get it right.”
The company today boasts of more than 400 million customers with over 10 billion policies. In 2016, the company came into partnership with Ethereum to establish Zhong An Technology in order to carry out research in AI, blockchain and cloud computing.
C. Insurify
Insurify has been innovative enough in deploying a smart and 24 x 7 available virtual agent named Evia. The application is instant in verifying customer data in order to compare and provide the best results possible. The quotes are derived from various zip codes and provides recommendations on coverages based on that. The main motto is to provide the user with the most relevant options in accordance with the user profile. Insurify is deemed to be an internet company that specialises mainly in car insurance. The application has been successful is using AI, language processing, and chatbots to deliver desired and most relevant insurance policy for the customers. Amongst the various technological adaptations, the company has been credited for inventing the RateRank, which is a software that matches each drivers profile and risk levels thereby, proving with the most apt cover.
“When it comes to making your life easier, we make no compromises” –Insurify
D. Atidot
Atidot is an Israeli start-up company providing a predictive analytics platform by using AI, machine learning & big data and in turn help the insurance companies to get a deeper insight to their data and so that they make meaning out of it. It empowers the life insurance company to become data driven and carry out the optimization using the technology. The idea of Atidot was perceived by their founders with the main idea of applying analytical skills to an industry which lagged in data analytics. And what better than insurance sector would have filled this criterion! They finally saw huge scope that was untouched in the life insurance sector. Up to 40-50% of the life insurance polies were non profitable and about 80% data was idle and not been put to strategical uses. All such factors motivated the founders to create something path breaking in this field. Therefore, they launched Atidot, the first technology company that was made to dealt directly with the life insurance data.
The tons of data collected is filtered and within seconds machine learning is used to generate insights from the data. The company has also partnered with some of the key technology leaders in the industry namely: Microsoft, iPipeline, Sureify, TechMahindra etc. in order to create an impact.The main agenda of this company is to help insurance companies maximise their profits with the help of solutions provided by them, and in turn enabling the insurers to understand the customers and anticipating their changing needs.
“Our plan is to continue to empower insurers with constant analysis of data on policyholders to create new opportunities for client communications, to either offer a new service or adjust a policy, thereby increasing policyholder satisfaction and retention.” –Atidot
E. Flamingo
Headquarters: Australia
Founded: 2016
Key Person: Catriona Wallace
Not all insurtech companies started with the idea of catering to the insurance sector, one such company is Flamingo which started as a provider of technology for the financial sector only, by guiding customers in their selection and purchase of financial products. Flamingo came up with a cognitive virtual assistant platform for the auto insurance and therefore came into a deal with Liberty Mutual. This move by the company was strategically placed in order to increase the sales and revenue, which are integral to a start- up. Flamingo recently announced the launch of a cognitive virtual enquiry assistant for auto insurance named MAGGIE. This is aimed to assist customers and employees with questions relating to auto insurance.it is said to have been pre- ceded with auto insurance knowledge and over 1200 FAQ’s (Frequently asked questions). The interface learns rapidly from every interaction upgrading itself in the process. Flamingo is also a provider of LIBBY (self-organising library) a software used to analyse large unstructured text and the ‘Brain’ i.e. the machine learning engine that can be used by other tech companies for customer interactions.
“To start there, and rip people out and put robots in would be disastrous, it must start with the augmented approach.”– Ms Wallace (Founder Flamingo AI)
There are a lot of other players in this field with equally innovative stories and passion driven start-ups. The insurance industry is no more limited to the conventional way of doing business and is opening doors for creative minds. The adoption of insurtech has clearly defined progression in the insurance industry.
Indian Insurance Industry Today
Artificial Intelligence has helped refurbish businesses. It is producing new avenues for growth and profitability. Being an incredibly regulated industry that insurance is, organizations have comparativelytaken up technological implementations relatively fast. Insurance no longer seems to be steeped in manual, paper-based processes that are slow. McKinsey’s estimates an expected annual fee of $1.1 trillion, if artificial intelligence is fully applied to the insurance enterprise. With the cost-saving ratios that the technology has given, organisations are keen at adopting it in the future.
One major factor why AI will prove to be critical is the ever increasing “datafication” of all forms of interactions.
As per a Deloitte report, AI is assisting insurers by way of predicting danger with greater accuracy, and the use of better foresight to hastily deploy new products. It lets the insurers to be more agile, allowing them to install new technology and techniques in reaction to the emerging risk.
Some significant examples of how the Indian Insurers are putting technology to use are as stated:
- IFFCO Tokio General Insurance company has “leveraged AI for image processing to analyse the extent of the damaged vehicle (personal cars), which helps them in generating a list of repairable and replaceable parts that were damaged in the accident. Within a couple of minutes, the assessment and therefore the cost are given to the customer, which they will either accept or reject. If the assessment gets accepted, the payment is formed within fifteen minutes on to the customer’s checking account. The company has automated claim settlement with AI.”
- To submit the certificate of existence, a user had to visit the branch. It was a time-consuming process for both customers and the company. We automated this process and made it digital by using AI. Now, the user can simply submit a photograph through application and therefore the intelligent algorithms verify whether the person is alive or not.
- To service its customers in an instant, accurate and efficient manner, Max Life Insurance has put Artificially Intelligent to use. Its website offers a live chat supported by a bot that is constantly learning and providing more and more information to its customers in a timely and concise manner.
Insurance Industry 2030
The face of insurance industry will witness changes that are creating a buzz in the present. Implementations will be in full force, and changes will be accelerating. The insurance industry will be ready to work with a new force and pace that will be essential to their survival and enriching for their growth. A whole set of emerging trends will conquer for the greater good. According to our analysis, we present to you 10 such trends:
- Customer satisfactionwill prove out to be the ultimate goal of the insurance companies. The insurers must realise that the paradigm shift towards technology driven industry aims at providing satisfaction to their customers and in turn retaining them. It is the need of the hour to change the business models from the traditional approach of placing focus on the product and not the customer to just the contrary.
- The mature markets are places that have successfully implemented the technology driven approach to their workings. Learnings from such markets will be the bible for the new players or companies who wish to put their foot forward in the tech driven space.
- Speedy claim settlement is one common agenda that will be seen as targets for various insurance companies. The smooth claim settlement is directly related to the customer’s satisfaction. The customers tend to perceive faster claim settlement as a positive feature that the company offers. E.g. Lemonade has set a benchmark in this area to settle claims in less than 3 seconds. This is what is expected from all the insurers and therefore adaption to the same becomes necessary.
- Health wearables are greatly used and recommended as, they are a great source of data to the insurers. Hence, health ecosystems will prove to be important in the life sector. E.g. Smart watches that keep a track of your health time to time and report all the data directly to the insurance company. Such data stands very important when to comes to renewal of policies or setting up of rates for specific age groups.
- The old business models should be upgraded, a cultural change is what the time demands which is in alignment with the markets that the insurers serve in. it is essential to keep up with the pace of ongoing growth in the market and the various changes that
- Technology driven mechanisms and models work completely on data. Predictive analysis cannot take place in the absence of abundant data. Data management is the key to success in the implementation of technology in insurance.
- AI & Machine learning, two major players to bring in efficiency.
- The motor insurance sector is talked to be the gateway of insurance. Personalized packaged polices will be popular in the near future where the insurance companies will give out policies based on the personal preferences of the client. Driverless vehicles may cause disruption leading to change in motor insurance business models.
- The role of underwriters and actuaries will change with respect to the digital data generated.
- Happy employees turn out to be more dedicated and innovative at the work front. Customer satisfaction is directly related to employee satisfaction. (good employee retention)
There are other various tools that might change the way business is done with the passage of time and development of innovation. The businesses should conveniently adapt to its dynamic environment for the very basic need of survival or else perish they will have to face!
Conclusion
The market will move at its own speed, new changes will emerge, and the various stakeholders will have to tackle and imbibe all the changes and upgradations that the market will witness. Some changes might not be relevant to the core business but ancillary. Only sustainability in such times will count and the resilience shown by the insurance companies to run long in the race by following these universal objectives.
Data is the heart of innovation in the industry and all the technological developments revolve around the same. This further helps reduce costs of the insurance company thus providing a flexible and dynamic business model that brings in more power.
The focus shift has now been placed with the digital audience. Interaction with clients for existing relationships should not be limited to policy anniversaries but to engage them further in the digital services. A huge amount of commitment is required to get engaged in such developments specially from the executives. It is important to tap the traditional processes and bring them to notice and in turn bring about changes in them.
AI and machine learning will bring about a more hassle free process, increase productivity and decrease the error rate in doing business. It is time that the insurance companies expand their area of providing services to not just handling policies but additional services that will not only be beneficial to the company but largely help in retaining clients.
The transformation aforesaid will be possible only by implementing cultural changes in order to get the new approach towards technology. Insurtech is no longer going to be seen as a side project but a disrupter in the times of doing insurance business largely because of the data pool the industry deals with.Some of the major problems like; opportunity cost, right advise, time consuming, cost, frauds, bulky operations etc are being faced by the insurance industry at present. The digital approach shall be placed here to the rescue for the insurance companies facing such traditional problems at the sales front.A cognitive approach to the workings is what one needs at the present.AI has the potential of changing and improving every day based on the judgements made yesterday. It keeps on learning from the humongous data available to it.
