Here’s how AI will radically transform insurance by 2030

AI is transforming every field, but have you imagined what impact it will have on insurance companies?
4 May 2018

AI is changing insurance and the job of insurers rapidly. Source: Shutterstock

Ever wondered how artificial intelligence (AI), today’s most dynamic technology, could change the face of insurance, the world’s most boring industry? Well, McKinsey has.

The consulting giant put themselves in the shoes of a customer in 2030 to understand how the customer, their needs, and therefore businesses would be transformed by the arrival and adoption of AI.

In their most recent paper, McKinsey outlines what a day in the life of a customer might look like:

A customer will wake up, look at his schedule, and have his AI-powered personal assistant (PA) hail him an autonomous car.

The customer can choose to drive the car by “selecting ‘active’ mode” and have his PA choose a route and inform the auto-insurer and the chosen life-insurer, both of whom work on a “pay-as-you-live” model.

If the insurer feels the chosen route is accident prone, it could inform the PA and either help the customer choose a safer route or stay the course but pay an increased premium.

If the customer chooses the latter, the amount will be calculated and deducted from his bank account, of course.

In case the customer meets with an accident, the PA informs the customer to take pictures of the front, rear, and sides of the car, while the car diagnoses the extent of the damage.

While the customer gets back into the car, the PA files a claim with the insurer who deploys a mobile response drone for inspection.

Once completed, the car (provided it can still be driven after the accident) can autonomously be directed to the nearest garage for repairs.

According to McKinsey these days aren’t far away. “While this scenario may seem beyond the horizon, such integrated user stories will emerge across all lines of insurance with increasing frequency over the next decade. In fact, all the technologies required above already exist, and many are available to consumers,” says their report.

The consulting giant feels that as AI becomes more integrated into the industry, carriers must position themselves to respond to the changing business landscape.

Executives and leaders will also need to understand the factors that will contribute to this change and how AI will reshape claims, distribution, underwriting, and pricing.

With this foundation, today’s insurance leaders will be able to build the skills and talent, embrace the emerging technologies, and create the culture and perspective needed to be successful players in insurance tomorrow.

AI-related trends shaping tomorrow’s insurance industry

There’s no denying that AI is taking over our lives already, making it easier and more comfortable every day. It’s fuelling the growth of four core technology trends that are tightly coupled with AI and help transform the industry.

Namely, the rise of connected devices, physical robots, open source & data ecosystems, and cognitive technologies can make significant contributions to transform the life of insurers in the future.

Even the simplest of connected devices such as a fitness tracker or a “smart shoe” collects plenty of data about a customer, enough to help calculate a “personal risk score” that can translate into actual premiums charged, in real-money terms.

With more physical robots in the ecosystem, there are more opportunities for humans to interact with these digital creatures – which has their own risks and rewards. Insurers must take these into account when making their calculations.

As data becomes ubiquitous, open source protocols will emerge to ensure data can be shared and used across industries. Various public and private entities will come together to create ecosystems in order to share data for multiple use cases under a common regulatory and cybersecurity framework.

Finally, as cognitive technologies used for today’s image, voice, and unstructured text processing evolves, they’ll become the standard approach for processing the incredibly large and complex data streams that will be generated by “active” insurance products tied to an individual’s behavior and activities.

How AI will transform different aspects of insurance

According to McKinsey, AI will transform what insurers do and how they do it. In fact, going by their vision, it seems like AI will take the pain out of distribution, underwriting, and pricing, and make claims simpler than ever before.

Facilitated by IoT and smart contracts (linked to blockchains), distribution will be a breeze. Using AI powered PA, like in our initial example, insurers have several touchpoints with customers. They can also tie up with product manufacturers and other providers along the value chain, given the shared data ecosystem that we’re gearing towards.

Underwriting and pricing will also become significantly simpler with all the data that insurers will have at their disposal – albeit with the (explicit) consent of the customer. This will ensure pricing is done appropriately, and that risks are evaluated appropriately. Fitness trackers and smart-shoes, for example, could make pretty good assessments of a customers health that could be factored in to the pricing so their premiums are charged accordingly.

Finally, claims – like in our assessment – can be automatic. In fact, according to McKinsey, Claims processing in 2030 remains a primary function of carriers, but head count associated with claims is reduced by 70 to 90 percent compared with 2018 levels.

Advanced algorithms handle initial claims routing, increasing efficiency and accuracy. Claims for personal lines and small-business insurance are largely automated, enabling carriers to achieve straight-through processing rates of more than 90 percent and dramatically reducing claims processing times from days to hours or minutes.