Can Cool IoT and Robotics Help Drive Down the Cost of Insurance?
It’s safe to say that there have been significant advancements in e-commerce. This is due to increased consumer spending online, which has accelerated the trajectory of emerging technologies, many of which have practical applications for the insurance industry. AI has streamlined the supply chain to drive costs lower, analyzed consumer data to deliver personalized experiences, and will now enable insurers to provide simple and fast claims that are both honest and fair.
AI will reshape claims, distribution, underwriting, and pricing. Insurers must understand the factors that will contribute to these changes. Without embracing these emerging technologies, they will not have the resources to build the skills and nurture the talent needed to advance in the industry. They will need to be ready for the shift in culture and perspective that lies ahead in order to be successful insurers of the future.
AI’s underlying technologies are already being deployed in our businesses, homes, and vehicles, and even on our person. There are four core technology trends tightly coupled with (and sometimes enabled by) AI that will reshape the insurance industry over the next decade.
Sensor Technology, equipment with sensors, has been omnipresent in industrial settings for some time, but the coming years will see a huge increase in the number of consumer products that will include sensory applications. We already have embraced this technology for our cars, phones, and watches. We have recently begun to augment our health with fitness trackers and our productivity with home assistants. This trend will continue to accelerate, with new categories, such as clothing, eyewear, home appliances, medical devices, and shoes, joining the foray.
The avalanche of new data created by these devices will allow savvy carriers to understand their clients more deeply. This will bring about new product categories with personalized pricing and increased real-time service delivery. For example, wearables that connect to an actuarial database could calculate a consumer’s personal risk score based on their daily activities, as well as the probability and severity of potential events.
The field of robotics has seen many exciting achievements recently. Innovation in this field will continue to change how humans interact with the world around them. Additive manufacturing, also known as 3-D printing, will radically change how we produce our goods and, in turn, the commercial insurance products of the future. By 2025, 3-D-printed buildings will be common, and carriers will need to assess how this development changes risk assessment.
We will also see the rise of programmable autonomous drones. Self-driving cars, autonomous farming equipment, and enhanced surgical robots will all be commercially viable in the next decade. By 2030, the proportion of autonomous vehicles on the road could exceed 25 percent. This will have grown from 10 percent just four years earlier. Carriers will need to understand how the increasing presence of robotics in everyday life and across industries will shift risk pools, change customer expectations, and enable new products and channels.
As data become more ubiquitous and easier to share, open-source protocols will become inherent across all industries. Various public and private entities will come together to create ecosystems so they can share data for multiple-use cases. This data could come from a variety of consumer devices—the everyday devices connected to our homes, our tools, and ourselves. Manufacturers like Amazon, Apple, and Google could port directly to insurance carriers. This will have to take place under a common regulatory framework with impenetrable cybersecurity.
AI and its related technologies will have a seismic effect on all aspects of the insurance industry. Advanced technologies and data are already affecting distribution and underwriting, with policies being priced, purchased, and bound in near-real time. An in-depth examination of how insurance may look in 2030 highlights the dramatic changes across the insurance value chain.
The most obvious change will be to the customer experience. Purchasing insurance will be faster, with less active involvement between the insurer and the policyholder. AI algorithms will know enough information about an individual’s behavior to create an instant risk profile, reducing the cycle times for completing the purchase of an auto, commercial, or life policy to minutes or even seconds. Auto and home carriers are already offering instant quotes and will continue to refine their ability to issue immediate policies to a wider range of customers. The proliferation of telematics and in-home Internet of Things (IoT) devices, coupled with the maturation of pricing algorithms, will make this a reality.
Many life carriers are experimenting with simplified issue products but can only service the healthiest applicants and price them higher than a comparable fully underwritten product. AI will permeate the technology used for life underwriting, allowing carriers to identify risk in a much more granular and sophisticated way. This will usher in a new wave of mass-market instant-issue products.
In 2030, manual underwriting will cease to exist for most personal and small-business products, such as life, property, and casualty insurance. Automation will reduce the time for underwriting to mere seconds. A combination of machine and deep learning models built within the technology stack will make this not only possible but infallible.
Price remains central in consumer decision-making, but carriers that innovate to diminish competition purely on price are missing the bigger picture. Sophisticated proprietary platforms aim to connect customers and insurers. This collaborative approach allows insurers to offer customers differentiated experiences, features, and value. In some segments, price competition intensifies, and razor-thin margins are the norm, while in other segments, unique insurance offerings enable margin expansion and differentiation. In jurisdictions that embrace change, the pace of pricing innovation is shockingly rapid.
The dynamic and rich data garnered from customer usage allows for a scientific approach to risk assessment that is almost instantaneous. Real-time pricing empowers the consumer, by showing them how their actions influence coverage, insurability, and pricing. When comparing two options, they can balance cost, knowing that AI has developed the insurance through means that have been proven to be fair.
Claims processing in 2030 will remain a primary function of carriers, but there will be a reduction in headcount of 70 to 90 percent of 2018 levels.
IoT sensors and an array of data-capture technologies, such as drones, will largely replace traditional, manual methods of first notice of loss. This will trigger the automatic response of claims triage and repair.
Automated customer service apps handle most policyholder interactions through voice and text. They directly follow self-learning scripts that interface with the claims, fraud, medical service, policy, and repair systems. The turnaround time for claim resolution is now measured in minutes, rather than days or weeks.
Human claims management focuses on a few areas: complex and unusual claims, and contested claims where human interaction and negotiation are unavoidable. Even these will use analytics and data-driven insights to support decision-making. Only claims linked to systemic issues, risks created by new technology (for example, hackers infiltrating critical IoT systems), and random manual reviews of claims to ensure sufficient oversight of algorithmic decisions will require noticeable human interaction.
This trend toward automation will transform every industry across the globe and massively affect the human job market. How we deal with this and who will benefit remains to be seen, but in the immediate future, can we look at the processes within our own industry that are labored, overworked, or redundant, and consider how can we use new technologies to benefit the people who use our products? Can we use the new to augment the old? What new ideas that couldn’t be progressed previously are now viable? Is there anything peeking over the horizon that looks like it could become part of our commercial future?
Greg Wixted is the Chief Innovation Officer at Nobl and Co-Professor in Entrepreneurship and Innovation at the University of North Carolina.