Artificial intelligence knows your policyholder better than you

Photo: Traditional insurers face increasing pressure to evolve before the disruption of their competitors leaves them behind. Credit: Eugene Zhyvchik | Unsplash

By Daniela Perdomo
The impact of artificial intelligence (AI) on the economy is a fact, as shown by the fact that world GDP will increase by up to 14 % in 2030 as a result of the development and accelerated adoption of AI-related technologies. This figure, given in the latest PwC Sizing the Price report, not only reflects how leading technologies are already having a direct impact on all industries, but also anticipates how they will continue to do so in the near future.

The implementation of both AI and other technologies is revolutionizing some sectors and setting new rules of competition in the market, as many companies see how technological innovation has become their great ally to face a constantly changing environment.

The insurance industry is a good example of this transformation: a traditional sector that has been operating in the same way for years and is now seeing the opportunity to change to reach more digitized customer segments whose needs are evolving at the same speed as technological advances.

Photo: One of the technologies that will profoundly change our future is artificial intelligence. Credit: Sergey Zolkin | Unsplash

A turning point
The transformation of each sector has its own pace and the evolution of insurance is not the same as that of other sectors, as the director of Solutions in Opinno, Bernardo Duce, points out: "Insurance companies have another speed. It is a business that relies on a distribution channel and on agents that are not from the company itself and that makes digitalization very difficult."

For the expert, a turning point is currently being experienced in the sector and he points out that "it is time for insurers to start changing." In fact, as Duce says, insurance companies are already beginning to join the trends in other sectors. The incorporation of AI into business processes and the increase in connected consumer devices already generates a large amount of data that allows for a better understanding of customers. This trend serves to create new products, customized pricing and service delivery in real time. A combination that translates into a more satisfactory experience for the policyholders.

AI for a personalized service
The importance of the customer experience throughout the insurance value chain is crucial: it must be adapted to the way customers want to buy and be served. The difficulty lies in the fact that there are two large groups: the new young customers who are fully integrated in the digital era and the more analogical customers who are reluctant to go digital because of the generational factor. This forces insurers to offer services and products at two speeds, and in this redesign process, AI can help to fine-tune each segment more thoroughly.

On the one hand, the millennials are looking for more flexible and immediate options. Insurance companies must develop a multi-channel strategy capable of attracting them with new experiences. An ally is the data processing that allows the analysis of this customer's behavior and helps to generate a predictive knowledge about their future actions and needs, according to Deloitte's Transformation of Insurance Companies in the Digital Era. In this way, insurance companies will be able to anticipate by creating totally customized products and services.

However, we must not forget the most analogical user, who is still the star customer who has trusted the big insurance companies for years. Although this segment is not as familiar with the online environment, it is gradually being digitized. This behavior has been evident during the coronavirus pandemic, as consumers between the ages of 61 and 65 have increased their use of digital payments by 37 % and those over 66 by 33%, according to Capgemini's analysis.

"Currently, AI is only used in the claim of unpaid bills and in call center management through the use of chatbots as a back office tool," warns Duce, about the potential that still remains to be exploited by AI to achieve fine-tuned personalization. According to Insurance Europe's analysis, this technology will help insurers predict risk more accurately, customize products and services, and use improved forecasting to quickly deploy new products in response to emerging risks.

Photo: The implementation of artificial intelligence will be vital for all industries, including insurance. Credit: Photos Hobby | Unsplash

A collaborative future
At present, the collaboration between insurers and insurtech will continue to grow and, moreover, it will be a unique opportunity to adapt to the speed of the market. In fact, 84.2 % of the insurance companies consider that insurtech will have an impact on the creation of new products, 78.9 % on the redefinition of the customer experience and another 78.9 % on the improvement of business processes, according to the World Insurtech Report of 2019. Insurance companies visualize a future in collaboration with the insurtech ecosystem and some of these specialized start-ups are already at the forefront of innovation:

• Luko is an insurance company that analyzes domestic electricity consumption in real time through sensors that collect data to establish a predictive model. Today it is the number one company in France in digital insurance.
• Bdeo is a start-up that has been developing solutions for the insurance sector for 15 years. It was created to cover the need for virtual technical assessments and offers customers video calls with anti-fraud security features.
• Kovrr financially quantifies the cyber risk for the insurance companies themselves; this Israeli start-up combines the use of massive data with AI to identify cyber-attacks that can lead to significant losses.
• Lisa Seguros is a start-up of Spanish origin that focuses on the personalization of products and services. It also offers individualized insurance through automated data processes so that customers only pay for what they need.

In addition to these companies, if there is an innovative reference in the field of insurtech, it is the case of Lemonade, the most recent unicorn in the insurance sector, that is: the emerging company in the industry valued at one billion dollars. This company, which started as a start-up in 2015, uses AI and a mobile application to turn the century-old insurance business into a millennium-friendly product.

Its unique business model has led it to obtain more than 48 million Euros in premium income from 425 000 clients under 35 years of age and millionaire financing rounds provided, in part, by large insurance companies such as Allianz. Its value proposal has been characterized by offering speed in the payment of claims, detecting possible fraud and donating the remaining money from 75 % of the profits to solidarity organizations chosen by the users.

All these innovative examples show that the insurance industry already has an offer of applied services that incorporate AI in its processes and that the collaboration between the ecosystem will be one of the keys to success in joining forces in a constantly evolving market. This technology will offer great opportunities to optimize existing procedures and enable new ones, which will provide a competitive advantage to insurance companies in the professional scenario of the future.