Embracing AI: The Gift that Keeps on Giving

Introduction

‘Tis the holiday season, and the small talk around the office water cooler inevitably turns to parties, year-end vacations, and of course, what presents to exchange with clients and colleagues. For insurers, most would agree that the best present for them this year has been the surge of AI-based solutions that have transformed their operations for greater efficiency, accuracy, and customer satisfaction. With AI, insurers can predict individual risks with unparalleled precision, leading to more personalized and affordable insurance plans.  AI has been the gift that keeps on giving for those that build it into their “business as usual” processing; not only through its transformative effects, but for giving companies the opportunity to become more competitive in today’s dynamic insurance market. Yet many insurers face barriers to entry that prevent them from fully embracing AI technology and reaching their full potential. In this blog, we’ll examine the roadblocks to AI implementation and explain how insurers can capitalize on AI to gain a competitive edge.

AI: Not (Yet) on Everyone’s Gift List

The potential of AI to revolutionize the insurance industry, driving efficiency and cost reduction, is evident. However, many insurers have yet to fully leverage its capabilities. Implementing AI solutions often requires a significant financial investment in software, hardware, and on the job training, and smaller insurers may struggle to allocate resources for such large-scale transformation efforts. Insurance investments in AI are projected to surge by over 300% from 2023 to 2025, but very often, smaller carriers don’t know how to scale them. Insurers are also often hindered by the fragmented and siloed nature of their data and face issues with combining data sets across the application lifecycle, with third-party data adding further complexity.[1] Insurers continue to operate in a complex legislative and regulatory environment, and it’s inevitable that AI solutions will come under more scrutiny by global regulators. The EU has already categorized the insurance industry as high-risk, which means it is subject to increased scrutiny and audit capability relating to decisions made by predictive models and machine learning systems.[2] Navigating complex regulatory environments and ensuring compliance with data privacy laws can be daunting, and insurers will need to invest in legal expertise to address these challenges. Finally, the question of finding talent that has a good mixture of domain-specific expertise and data science, and that is skilled in operating one-off tools that perform point solutions remains an issue for many carriers.[3] But by proactively addressing these hurdles, insurers can unlock the full potential of AI, improve customer experience, gain competitive edge, and drive innovation in the industry.

The Tiffany of Technology Solutions

For so many carriers, AI-based tools remain the Tiffany of technology – premium, valuable solutions whose automation can handle routine customer inquiries and allow underwriters to engage in higher-value interactions. AI can also help design customized policies based on individual customer profiles, ensuring that coverage aligns with specific needs. AI underwriting also provides more accurate risk assessments via predictive modeling that can identify patterns and trends that human analysts can leverage as actionable insights. AI-powered systems can streamline reporting and auditing processes, ensuring that insurers remain aligned with industry standards. Just as a Tiffany diamond retains its value and appreciation over time, AI-powered solutions will continue to deliver a strong return on investment for insurers as they evolve and adapt to the changing needs of the industry. AI will continue to disrupt and transform the insurance marketplace, and insurers that hesitate to embrace AI will have a difficult time keeping pace with the new ecosystem.

The Final Word

After the holiday season ends, when the gifts have been exchanged, the wrapping paper has been swept up, and the decorations have been put away for another year, we’ll hopefully have cherished memories of joyful holiday celebrations with our work clients and colleagues. AI will still be transforming the insurance landscape via digitalization, greater automation, and other transformative capabilities, with the promise of future innovations that will make it the must-have, go-to gift for insurers the whole year through. Happy holidays!

[1] Op. Cit., Munich Re, pg. 5

[2] AI transformation in insurance underwriting: Unlocking the Power of Predictive Models, Munich Re, 2024, pg. 5

[3] Ibid., pg. 6