From Laggard To Leader: How The Insurance Industry Is Embracing AI To Deliver Real Business Benefits

August 8, 2023

By Stan Smith, Forbes Councils Member, Forbes Technology Council

AI has made significant progress in the insurance industry. The traditionally cautious insurance sector now widely accepts AI as a powerful tool for cost reduction, growth, operational efficiency and employee satisfaction. This transformation is being driven in large part by a new category of companies known as "insurtechs," which excel at leveraging AI, data analytics and industry data lakes to gain a competitive advantage. While AI chatbots are still in their early stages, purpose-built AI solutions in insurance offer tangible benefits in claims management, underwriting and other crucial areas of the insurance value chain.

AI models can now predict potential policy losses and claim directions due to their ability to consider numerous inputs simultaneously, like medical history, demographics, driving records, weather information and adjuster's notes. The speed and accuracy of the trained AI models provide valuable insights for underwriters and adjusters, leading to better outcomes.

Progressive insurers are embracing the transformative power of AI to improve their operations, attract customers and enter new markets. Let's examine this paradigm shift and explain how insurers who are on the fence about AI can get started with it.

AI-Driven Underwriting Reduces Risk, Saves Time And Increases Profits

The ability to accurately assess risk is fundamental for insurers. By leveraging AI and advanced analytics, insurers can access a wealth of information that enables underwriters to make better pricing decisions. AI serves as a knowledgeable digital assistant, utilizing industry data lakes containing millions of policies to enhance underwriters' risk assessment abilities and evaluate policies more efficiently.

Typical underwriters might only see about 10,000 policies throughout their careers and only retain insights from a few hundred. In contrast, AI models can learn from millions of policies, providing underwriters with deeper insights than ever before. These AI-enabled digital assistants continuously learn and improve their performance, contributing to the underwriters’ expertise.

AI Manages Claims Faster, Identifies Red Flags And Prioritizes Them

Prioritizing the right claim at the right time is important to successful claims management. However, claims managers often face challenges identifying and assessing severe claims due to large caseloads and vast amounts of data to manage. AI-powered solutions alleviate this burden by learning from millions of claims and constantly evaluating their severity and risk. These solutions also act as highly experienced digital assistants, tirelessly examining claims and surfacing those that require attention while automatically processing the straightforward ones.

This allows adjusters and claims managers to proactively manage claims, focusing their efforts where needed. Everyone benefits from this approach; workers get the specific treatment they need sooner and recover from injuries more quickly, claims costs are reduced and management efficiencies are improved.

How AI Bridges The Talent Gap

The insurance industry is facing a significant talent crisis as many experienced workers approach retirement age. As noted in a 2021 report from the U.S. Chamber of Commerce, "According to the U.S. Bureau of Labor Statistics, the number of insurance professionals aged 55 and older has increased 74% in the last ten years, leading the BLS to estimate that over the next 15 years, 50% of the current insurance workforce will retire, leaving more than 400,000 open positions unfilled." The industry risks losing valuable knowledge and expertise. Fortunately, AI solutions offer a remedy for this “brain drain” by capturing the experience of seasoned professionals and enabling new employees to learn from it.

This process leverages “institutional knowledge,” which includes the data, expertise and best practices accumulated by employees over time. Insurers can leverage this valuable knowledge to train AI models, effectively transferring it to newer employees. By providing new hires with AI-powered virtual “guardrails,” insurers can reduce learning curves mitigating the potential loss of expertise due to retiring underwriters and adjusters.

Getting Started With AI In Insurance

Where To Focus: Before you start on your AI journey, it’s important to assess your business strategy and determine the areas that would benefit the most from AI. Harvard professor Michael Porter's three generic strategies of cost, differentiation and focus are a good place to start. Select the strategy consistent with your business model and think about how AI could impact that strategy. For example, if cost reduction is a priority, AI can be used to automatically process low-risk policies, freeing up underwriters to focus on more complex policy submissions. AI can help staff make more decisions quickly, maximizing efficiency and allocating resources more effectively.

Check The State Of Your Data: Just like an aircraft pilot does a preflight check, checking the state of your data quality is crucial for AI initiatives. Evaluate if you have the necessary clean, normalized data and identify any gaps. Integrating AI into insurance workflows can be challenging due to the massive amounts of formatted data required by AI models. Even after data preparation is complete, additional time will be needed to train AI models. However, insurers wanting to bypass these steps and immediately benefit from AI can leverage industry data lakes and pretrained models. When ready, insurers can enhance model accuracy by incorporating their own data, further unlocking the value of AI for their businesses.

Organizational Resources: To determine if your organization has the necessary resources to support your AI initiative, assess your existing workflows and identify key stakeholders involved. Aligning these stakeholders and making decisions on how to utilize AI within your operations is crucial for success. Consider how AI will be applied within the context of your strategic goals.

Revolutionizing Insurance With AI: The Future Has Arrived

The insurance sector has embraced AI to improve customer service, increase profitability and address the talent gap. AI impact is proving to be greater than the digital transformation that preceded it.

AI enables insurers to enter new markets, price more competitively, reduce loss ratios, settle claims more efficiently and transfer knowledge.

Incorporating AI into strategic, operational areas is essential for insurance companies to stay more competitive in today’s challenging economy. This is only the beginning, as new advancements like generative AI will accelerate change. But that is a topic for another article, which I will cover soon. The important point is that insurers are already gaining a competitive advantage and growing their businesses profitably by leveraging AI. It has become a critical technology enabler for growth and efficiency, and those who fail to adopt it risk falling behind.

Stan Smith is CEO and founder of Gradient AI.