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Artificial Intelligence is creating smart insurance

Vineet Singh, Head of Insurance Technology Practice Europe, Tata Consultancy Services 

The global insurance industry is going through significant change. We are seeing major changes in this sector, driven in large part by digital and data innovations including Artificial Intelligence (AI).

Long standing insurers are making significant investments in technology to adapt to changing business dynamics before they are disrupted by nimble, agile and technology first companies. Often with a particular focus on customer service, in fact, the insurance sector has been exploring ways for AI to augment the end user’s experience and deliver more tailored products for several years.

According to the second part of the Tata Consultancy Services Global Trend Study the insurance industry is outspending many other key verticals such as automotive and banking, having invested on average $124 million on AI in 2015, compared to a cross-industry average of $70 million.

But with AI investment expected to rise exponentially, we must ask where the value is most apparent and how can it improve the insurance industry specifically? There are also broader perception around the impact on jobs and the ability of people to adapt to these new tools and business models. What seems clear based on our data, however, is that insurance industry displays an encouraging willingness to innovate in this space– with some exciting results.

AI: Developing Smarter Insurance

Artificial Intelligence and machine learning technology is playing a major role in helping companies prevent injuries in some of the highest risk settings, such as manufacturing, energy, warehousing and distribution, and construction.

This is down to AI systems correlating data from a workplace environment with historical data on workplace incidents. Then, the technology is able to determine how best to prevent injuries before they happen. This use of AI is very timely, as workplace accidents kill one person and injure 153 others every 15 seconds.

Another innovative way AI is changing the industry is by the use of chatbots. These are computer programs designed to simulate conversation with human users. Chatbots work through messaging apps many customers may already have on their smartphones.

Insurance firms can use chatbots to answer questions and resolve claims, as well as sell products, address leads or complaints, and make sure customers are properly covered by their insurance. The use of chatbots can help the insurance industry to be more efficient and understand its customers, which ultimately supports business growth. 

The Future is Underwritten

Let’s look at underwriting – at the heart of what insurers do. This area of work can hugely benefit from AI. Artificial Intelligence has the ability to automate the entire process, by analysing a customer’s profile to find trends and patterns in his or her lifestyle. For example, someone who has a healthy life and steady job could be deemed to be a safer driver, which could lower insurance premiums.

In reality, AI can analyse more data and patterns than human can, to more accurately predict risk, thereby providing customers with the right amount of insurance needed to secure them against risks. Moreover, AI can far more accurately calculate appropriate insurance premiums for drivers through telematics technology that can track the number of miles driven per week and whether drivers stick to stated speed limits or routinely speed.

Driven by Data

One constant driver in the insurance sector is effective use of data – it is the lifeblood of the industry. This will not change now, or in the future. However, we expect a major shift from using internal data to external data in the decision making process. Seasoned industry professionals feel that AI is set to shape how data is mined to drive customer experience.

In case of motor insurance, AI has the ability to monitor road and traffic data,even predicting where road accidents could occur. Insurance firms not using AI should consider this technology, as it could shape the customer proposition, help customers select the right insurance cover, and drive customer satisfaction.

Job Creation in the AI Age

There is a perception that AI implementation will lead to job cuts. However, the reality is that insurance companies do not predict a huge net job loss as the result of the ongoing expansion of cognitive computing systems in the coming years.

Our research into the job market found that insurance companies felt that AI could automate an average of 10% of the jobs in their own departments in 2016. Looking further ahead, they anticipate that an average of 14% of jobs could be cut in 2020 in functions using AI, and 18% of jobs could be automated in 2025 through AI in functions that use the technology.

However, that projected job loss looks to be mitigated by some of the new roles these AI-related systems will create. Insurance executives predicted that AI resulted in average job increases of 8% in functions using the technology in 2016, and additional 10% more jobs in those functions in 2020 and 15% more by 2025 – in many new roles that don’t yet exist today.

The Future

In a world where there is arguably greater risk than ever before, there is a correlated need for the insurance sector to get smarter too. New products and services are needed to deal with areas such as natural disasters and climate change, as well as the impact of an ageing population. AI can help in servicing these groups better, but also in finding ways of better-predicting the relative risks we face, helping to make the insurance business model more robust and profitable.

Insurance is a relatively complex industry,but like any good technology, providing cut through and simplicity is where AI shines. If we are to realise the great promise of AI in the sector, both the nimble startups and major established industry players will need to embrace these tools.

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