How AI Technology has Changed the Insurance Industry
Insurance is one industry that has remained unaffected by change over the years.
13:16 26 July 2018
Insurance is one industry that has remained unaffected by change over the years. This is mostly because people will keep having accidents and will always be in need of some kind of insurance or the other.
The more technology advances, the better coverage people need. Faster cars mean more accidents, calling for both auto and life insurance. A hectic schedule and lifestyle changes mean more ailments, calling for health insurance. In fact, people need more insurance now than they did 50 years ago.
But a major problem that has always plagued the insurance industry is the lack of any development. The same companies that provided insurance 50 years ago are still the ones in business.
The insurance industry has always been dominated by big national brands that haven’t had any substantial progress in decades. Although insurance keeps selling and the industry remains afloat, there is never much to talk about.
The advent of artificial intelligence threatens to shake up the industry. Despite so many different technologies coming into play over the decades, the insurance market has kept functioning the same old way without being affected my change. But machine learning and artificial intelligence already seem to have a big impact on insurance technology.
There are both advantages and disadvantages that these newer technologies can have on the insurance market. With machine learning algorithms, underwriters will have more data to better assess risk and offer customized policies. AI will also help streamline the insurance process and engage with applicants and customers more efficiently.
This rapid change that seems to be coming about in the industry may mean big things for both customers and insurers alike. Here are a few ways AI affects the insurance industry and what the changes might be in the years to come.
Better risk assessment
Ever since the beginning of the insurance market, risk assessment has always been based on the information provided by the applicant. However, the problem is that applicants are often dishonest in providing information or give incorrect information. Without the right information, risk assessments cannot be accurate.
This is one of the areas where machine learning can have a huge impact. One aspect of machine learning is natural language understanding (NLU), which helps insurers go through various sources of information, such as social media posts, online reviews, and so on, and gather pertinent information for proper risk assessment.
With NLU, insurers are able to make use of information sources that weren't as easily available earlier. Better risk assessment means more accurate premiums.
In the insurance industry, the main competition is not the products but the prices. Better prices mean more exposure and more customers.
Another area where artificial intelligence is of a great help is fraud detection. Insurance involves money and data, and wherever these two things are involved, chances of fraud are high.
Insurance fraud is a major problem, and machine learning algorithms might be able to help prevent them by detecting patterns that often slip past human cognition. This technology has been applied by a number of companies in their fraud prevention services.
The ability of cognitive machine learning algorithms to detect fraud accurately is 75 percent right now. With time, the accuracy will only get better. These machine learning algorithms are able to provide detailed information on suspicious claims and detect and resolve fraud.
Algorithms can be trained to assist in detecting suspected fraud, and it is also in use in various industries. However, professional criminals are not far behind in innovation and technology. They are aware of the latest fraud indicators and find ways around them. Since machines are operated by humans, data scientists will always need to keep track of this and retrain the algorithms for detecting fraud.
Reduction in human error
The insurance industry has a long and complex distribution chain. There are a number of middlemen involved, examining information between the customer and the insurer. Because of the number of steps involved, there are lots of manual processes and human error that slow down the whole chain.
But AI seems to be a solution to that problem. In every industry, one of the main uses of artificial intelligence is to reduce human error. In fact, when the computer was first invented, it was meant to reduce human error and get more done in a short time. The same applies to machine learning.
Errors happen because of carelessness or inattentiveness. Humans often have a lot on their minds and end up making mistakes. Moreover, they may be hungry, or bored or tired, and not focus fully on the task at hand. Algorithms don't feel hungry or tired and can reduce the number of errors as information passes in the chain. This improves accuracy and reduces the need to do the same task again and again.
However, the algorithms need to be trained properly by humans. If humans make mistakes in training the machine, there will be errors again.
AI threat to insurance industry
Although artificial intelligence primarily has several benefits for the insurance industry, there are also a few threats.
The biggest threat is the reduction in business. With the help of AI, smarter, safer, self-driving vehicles will soon be on the streets. This will lead to reduced number of crashes and accidents. As a result, the demand for insurance will fall.
According to a report published in 2015, these radically safer, driver-less vehicles will reduce the auto insurance industry by 60 percent over the next 25 years. The number is massive, considering that auto insurance forms almost 40 percent of the whole industry.
This means more savings for people and on top of tax cuts – wow – that is a better quality of life.
At the same time, AI and automation will also arm insurances carriers with newer means to get more customers.
The basic fear of every industry is that AI will rob humans of jobs. On the contrary, AI and machine learning will make it easier for every industry to work more efficiently and get more done in a shorter time, as long as the machines are trained to work well.