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How AI is transforming the insurance industry

May 13, 2024

It’s hard to talk about the future of almost any industry without mentioning artificial intelligence (AI), and the insurance industry is no different. AI technology automates tasks that would typically be performed by humans, such as collecting information, analyzing it and making inferences. AI works best when it can ingest large volumes of data. Armed with that data, insurance professionals will be looking for ways to use AI technology to make the process of customer service, fraud detection, underwriting and pricing, and sales more efficient and seamless.

The use of AI in insurance is relatively new. Still, as the technology develops, insurers will continue to innovate to leverage the power of AI to transform the industry and improve the overall customer experience.

The impact of AI in insurance

Traditionally, the insurance industry has functioned reactively—it detects trends and adjusts accordingly. However, with its ability to take huge swaths of data to reason, learn and problem-solve, AI is helping to push the industry into a proactive state of prediction and prevention. While AI has the potential to revolutionize even the smallest of processes, its immediate impacts are being unlocked in the following six areas across the insurance industry:

  1. Customer service—The customer touch point is, by nature, a prominent aspect of the insurance process. Advancements in this area have the potential to make the user experience more accessible while at the same time easing the burden on insurers to respond to individual inquiries manually. Virtual assistants, such as chatbots, can interact with customers at any time—day or night—to address common questions and provide basic information. Chatbots can also provide a more advanced capacity to answer customer questions and initiate claims. Machine learning, a subset of AI, allows machines to gain insights, recognize patterns and make better decisions automatically.
  2. Claims—Continuing with the impact of AI in claims, it’s not just customers who benefit from these enhancements. AI has the potential to shorten claims processing times.1 Less time processing claims means insurance companies can save money on payroll, and the accuracy accomplished by these quick calculations can also lead to cost savings. AI in claims can provide recommendations based on quick data analysis, arming agents with the right information. The time agents may have previously spent on routine manual claims work can be used to focus on higher-skilled, valuable tasks. Moreover, AI-powered machine learning can streamline claims processing. Notably, by analyzing images, sensors and past data, AI tools allow insurers to quickly review claims and predict potential costs.4
  3. Underwriting and pricing—The underwriting process is complex, but AI technology can accelerate and improve many associated tasks. Insurance companies can use AI in underwriting to develop more competitive and personalized prices by automating the gathering of customer data like location, marital status and other demographics. This can help define the best rate and reduce the time needed to implement new pricing into the system.
  4. Sales—A sophisticated distribution strategy is an important facet of boosting a business. For example, artificial intelligence can open up new digital sales channels and strategies while simplifying the process for agents and brokers through integration with third-party sales applications.
  5. Fraud detection—According to the Coalition Against Insurance Fraud, insurance fraud costs the insurance industry more than $308.6 billion per year.2 AI tools can identify oddities in claims data and pinpoint inaccurate information entered by customers much faster and more efficiently than a human could. It can then flag such situations for a claims specialist.
  6. Risk prevention—Through advanced data analytics, AI allows insurance professionals to quickly review complex datasets, including historical claims records, customer demographics, market trends and environmental data. As a result, AI can be especially useful when it comes to predictive modeling and can assist in assessing loss data and forecasting future risks. For instance, AI can help insurers analyze a client’s Internet of Things (IoT) data or claims history to provide insights on potential risk management challenges as well as the business’s overall risk appetite. This information could also be used to predict future concerns, which allows insurers to provide tailored one-to-one guidance on behalf of their customers and get ahead of issues before they lead to significant losses5.

One AI service that could be useful for these tasks is ChatGPT, a language model developed by OpenAI that can generate human-like text based on its training data. This advanced AI technology has several features and benefits, including the ability to understand and respond to natural language input, generate high-quality text for various applications and interact with users conversationally. Additionally, ChatGPT’s advanced training and deep learning algorithms enable it to continually improve and learn from interactions, making it a potentially effective tool for customer service, content creation and data analysis.3 However, users should remember that public, open tools may not protect confidential or proprietary information, and sometimes offer plausible sounding, but incorrect answers.

There are other AI vendors insurance professionals could explore, based on their needs and budget, including Chatsonic, Chinchilla, Bloom and Jasper. As the technology evolves, it’s possible more AI tools will appear—ones that are specific to the needs of insurers and their book of business.

The benefits of using AI in insurance agencies

Implementing AI in insurance isn’t usually straightforward, and many insurance companies are concerned about the potential cybersecurity risks related to the use of AI. The technology needs to prove reliable and accurate, especially for high-impact uses. Still, as the world and technology continue to evolve, the benefits of AI for insurance are only becoming more apparent. Significant benefits of using AI in agencies include:

  • Increased productivity—The amount of data that exists across the business and in various digital formats grows every day. This proliferation of information is handy if it’s structured, but can be formidable to manage when it’s not. With its ability to process and make sense of data quickly, AI speeds up intricate operations, freeing workers to spend time on more high-level functions.
  • Lower costs—With processes sped up, the cost to perform each task decreases. Plus, employee satisfaction increases when they can focus on less mundane tasks.
  • Optimized customer experience—Ultimately, customers can benefit from using AI in insurance because customer participation is streamlined and easier to understand and access. Happy customers lead to more engaged customers, and that trust is good for business.
  • Efficient data—Whether it is client demographics, policy information, loss records, risk assessment trends or actuarial figures, insurance professionals have a lot of data at their fingertips. However, for many organizations, this data may be stored in different systems or difficult to parse given its complexity. This can make it difficult to see the entire picture when interacting with clients and providing guidance. Through the use of AI tools and other technology, organizations can store all of their data in one location and leverage large language models to more efficiently analyze mission-critical information5.
  • Decreased human errors—Historically, interactions between insurance professionals and clients have involved multiple stakeholders and manual data entry, creating opportunities for human error as information changes hands. Using AI (e.g., tools that analyze client or claims information), insurers can speed up various processes and eliminate the need for data reentry—all while checking for and maintaining consistent data4.

Embracing what’s next with AI

The business landscape is constantly evolving due to new technologies and approaches. As AI becomes more entrenched in everyday life across industries, it will become impossible—and foolish—to ignore. The insurance industry often functions very traditionally, but companies and their agents should be prepared to nimbly respond to tech changes if they want to keep up and stay successful. Claims, underwriting and processing, and other major insurance activities aren’t going away, but hopefully, engaging AI in insurance will help further optimize the industry’s processes, procedures, productivity and more.