The changing customer landscape due to the COVID-19 pandemic has necessitated innovation within the insurance industry. Not only are incumbent firms at threat from insurtechs using technology to personalize the insurance experience, but the shift towards digital insurance has been hastened. Data and analytics company GlobalData forecasts that AI platform revenues in the insurance sector will speed ahead, reaching $3.4bn in 2024 from $1.2bn in 2019. This represents a huge compound annual growth rate (CAGR) of 23% over this period.
The latest report by GlobalData, ‘Thematic Research: AI in Insurance’, reveals that insurance sector sentiments towards AI are largely positive, and notes that a greater understanding of the benefits on offer will drive spending on AI platforms.
Sophia Patel, Thematic Analyst at GlobalData, comments: “No longer limited to basic conversational platforms for customer queries, applications for AI in insurance now span the sector’s value chain – from product development and risk profiling to claims handling. As more legacy insurers inevitably move to the cloud, AI platforms, which are more compatible with these operating systems, are certain to see greater traction.”
Patel continues: “The revenue growth within this market is set to nearly double between 2019 and 2024, a sign that insurers are keen to innovate.”
Cloud-native insurtechs such as Lemonade and Root are already drawing on technologies ranging from AI to the internet of things (IoT) to offer cheaper premiums and customizable policy coverage, thus disrupting the wider market.
Patel adds: “Existing insurance firms need to adapt and invest in newer technologies to remain competitive against insurtechs. We have seen some bigger insurance companies leading the way with AI tools, but the emergence of specialist tech vendors over the last few years means these platforms are increasingly accessible to ordinary insurers.”
According to GlobalData’s M&A database, the limited number of AI-related deals in the sector suggests that vendor partnerships are will be the preferred mode of AI adoption, rather than development of in-house expertise.
Patel notes: “Insurers can access technology instantly and won’t require significant capital to deploy these tools. For ordinary insurers will fewer resources with which to acquire AI companies, partnerships will make AI technology more accessible.”
AI technology will help mitigate against the impact of COVID-19 on businesses, alleviating the pressure on insurers to improve their digital capabilities. The 2020 Emerging Technology Trends Survey by GlobalData found that 80% of insurance executive respondents felt that AI would play a role in helping their companies weather the pandemic. Widescale stay-at-home orders have meant remote handling of claims and queries is now necessary, and tools such as computer vision and conversational platforms can be deployed to automate these processes.
Patel concludes: “Nonetheless, recent cases where AI has contributed to discrimination and bias has reduced trust in the technology. As insurance companies increasingly employ AI to inform decision-making processes, explainable AI practices will be vital to maintaining consumer trust. Algorithmic transparency measures will need to be integrated into the early stages of AI deployment.”
