Insurance disruption with AI, Blockchain, and IoT
Presently, the insurance sector is valued at $4.8 trillion. While the numbers sound rosy, there are several issues plaguing the industry. These include stringent regulations, appreciating cost of capital, increasing competitive rivalry from agile tech upstarts, and reduced returns produced from asset investments. And, as the confluence of the physical and digital domains gains momentum, insurers also have to manage quickly evolving client expectations with regards to personalized, customized products and services, omni-channel engagement, etc.
Given these issues, the insurance sector must invest heavily in digital transformation to stay on top and maintain viability in a rapidly-shifting market scenario. Traditional business and operating models, encompassing critical functions like underwriting, claims settlement, and client service, are in dire need of being revamped. There are three emergent technologies that are key to achieving this – they are blockchain, IoT (Internet of Things), and artificial intelligence (AI).
- Cognitive AI facilitating agile, scalable underwriting
Insurers have traditionally been dependent on mathematicians to evaluate risk and devise premium rates with regards to policy underwriting that would result in reasonable levels of payouts without putting the organization’s financials into trouble. This situation is now evolving, with various aspects of artificial intelligence, this includes ML (machine learning), natural language processing (NLP), and text analytics, and audio, image and video analysis – efficiently managing mathematical, logical or ongoing activities.
A majority of insurance industry leaders are leveraging machine learning algorithms and advanced data analytics in mining humongous volumes of data obtained from disparate sources, for enhancing the accuracy of risk estimation. ML utilities, which quickly aggregate and evaluate these humongous datasets obtained through IoT, social media, telematics, drones, and also MIB, DMV and other traditional 3rd party external systems are also facilitating functional fraud detection and cross selling.
Text analytics and NLP are enabling insurers to revamp client engagement through embedding quality self-service features on client portals and smartphone applications. NLP is also a key driver behind next-generation client service, through robots that hold meaningful convos, or chatbots, harnessing AI-based understanding to tackle individual customer concerns.
The 3rd way in which AI is considerably revolutionizing insurance is via audio, video, and image analysis, with the help of which insurers can execute processing and settlement of claims correctly – and with increased speed – to facilitate client satisfaction. For example, an individual owning a car insurance policy can file immediate claims in case an accident occurs through their smartphone application, by posting images of the accident. Self-learning algorithms, which have been coded to tailor to appropriate claims – associated information from imagery, can subsequently gauge the extent of the damage with accuracy, and automate the claims procedures.
- IoT driving dynamic risk pricing
In an always on, everything is connected world, the amount of data that can be evaluated to price risks is being produced at a remarkable pace. As everything turns smart, there are sensors everywhere, including the ones integrated with our body, in the case of wearables. The emergent IoT scenario presents insurers with several new business avenues to explore.
By obtaining actionable insights from comprehensive client information, payers can develop actuarial models with increased accuracy to personalize underwriting. For instance, they could leverage real-time behavioral and context specific client information – over being reliant on proxy factors like credit scores, to generate increased quality, dynamic risk profiles.
Another way in which IoT can be leveraged in insurance is the development of personalization in products and services. Automobile insurers could launch customized services and products, on the basis of a usage-based insurance framework (UBI), in which a person’s driving patterns will impact premium discounts. Therefore, if a policy owner is a careless driver, sensors located on the vehicle would quickly identify and communicate the data to the insurer’s IoT-based platform for relevant increases in the premiums. It’s the smart way of doing business.
- Blockchain smart contracts
AI and IoT are well on the path towards integration for insurance companies with tangible results being observed, blockchain-based applications are still relatively nascent and niche. Although, the prospect of the DLT in fostering end-to-end transparency, accountability, and robust information security is titillating indeed.
Industry executives are steadily increasing their investments and focus on blockchain technology, with the C-level having blockchain on its radar for a while now. One tangible use case of Blockchain tech is the proliferation of smart contracts. WorldCover, a U.S.-based payer has developed blockchain-based “smart” crop insurance policies for impoverished agriculturists in African countries. Falling under the “parametric” insurance scheme, the framework leverages 3rd party sources like high quality sat-imagery and on the ground sensor tech to identify rain patterns and plant growth information on a real time basis. With regards to particular conditions such as predetermined number of days of drought to be expected, payout to the growers happens on an automated basis without the requirement for any kind of manual intervention, paperwork, or decision making. And to ease the payment processing for clients, settlements happen on mobile monetary transfer services.
Another noteworthy use case of blockchain is identifying and handling fraud. Insurers and other stakeholders could leverage DLT to quickly obtain and renew associated information across claim evidence, 3rd party review reports and legal reports, for robust risk reduction.
Digital transformation is becoming somewhat of a necessity for insurers. Organizational priorities and evolving client demands make it vital for insurance companies to integrate emergent technologies and leverage them in a smart manner across the value chain for improved brand differentiation and profit. Those who demonstrate speed and an eagerness to renew themselves on an ongoing basis throughout the digital transformation journey will be sure to reap the rewards of their efforts. The ones who chose to adopt conservative strategies, stay on the sidelines, by sticking to conventional technologies and playing it safe – are at risk of being outpaced by their competitors, or worse.