A common joke among insurtech is that the optimal insurance company only exists of three entities, that being an actuary, a dog, and a computer. The computer runs the entire company, the actuary feeds the dog, and the dog bites the actuary if it tries to touch the computer. Insurtech integrates the words “insurance” and “technology”, quite literally optimizing current technology to squeeze savings and efficiencies into the insurance model. Insurtechs are plotted on very green grass, compared to traditional insurance models. They are integrating AI, boasting low headcounts, high efficiencies, seamless operations, and high projected growth rates. The insurance industry may be wary of their new competitors, as insurtech is raking in more money each year. In 2019 the global insurtech market was valued at $5.48 billion and is expected to grow to $10.14 billion by 2025.
How Can AI Be Vertically Integrated Across Insurance?
AI can be vertically integrated across the insurance model. From call centers to insurance assessments, to executive decisions, automation can play a key role in these areas. From a 2018 study, AI is mostly related to customer experience (58%), followed by process optimization (43%) and product innovation (19%). As a result, the insurance industry is particularly vulnerable to being on board the digitalization trend.
“Lemonade” app is a mobile download away, in which an AI chatbot by the name “Maya” will assist you through a personalized catered policy in 90 seconds, available day and night. No paperwork, no hassle, while conducting anti-fraudulent algorithms. Yael Wissner-Levy, head of communications at Lemonade, said “A lot of our customers are first-time insurance buyers. From the kind of feedback we’ve had, they either felt that insurance was too bureaucratic or they thought it was too expensive. Those are two things that we think we’ve solved.”. Insurtechs such as Lemonade aims to streamline and solve the inefficiencies of outdated models, optimizing cutting-edge technology.
Insurtechs Challenging Traditional Insurance Prices
Insurtechs are also challenging the traditional insurance fixed prices. It is now leaning towards personalized pricing, which accounts for the risks of the individual. Tracking car usage relative to insurance prices, changing the price dynamic of paying for your actions as opposed to pre-established price structures. Ari Libarikian, a senior partner with McKinsey & Company, said “Because of data and AI advancing so much in the industry, carriers can now do a lot more for their customers. They can help monitor risk, they can help predict risk and they can help give advice to customers on how to reduce risk going forward. That means the frequency and severity of losses come down over time”.
As a result of the insurtech adoption of AI, insurance companies are also turning their gaze towards the new technology. Recent studies from Genpact showed that 87% of insurers are investing higher than $5 million into AI annually, showing a willingness in the industry to adopt new technologies. Genpact global business leader, Sasha Sanyal, said “The emergence of insurtechs and changing customer expectations have been key drivers to adoption and commitment of investments in AI and other new technologies. Insurers are using AI to make smarter underwriting decisions, better manage risk, detect fraud and create positive customer experiences”.
Does The Insurance Fraud Show Loopholes In The Insurance Structure?
Insurance fraud has been a major issue and evident loophole within the insurance structure. It is somewhat pegged as a victimless crime, to simply claim the insurance on a broken laptop on which you spilled coffee. In the United States, non-healthcare-related insurance fraud was estimated to exceed $40 billion, putting an upward strain on insurance premiums. This upward force costs the average US household between $400 and $700 in higher premiums. Shift Technology developed an AI fraud detection software called ‘Force’, which analyses data and generates a fraud score for each claim. It has a 75% hit rate, which is difficult considering the counterbalance between real and unsuspecting claims.
Shift Technology co-founder, Jeremy Jawish, said: “You don’t want to falsely suspect claims because you’ll annoy your customers and you don’t want your fraud handlers to spend time on unsuspicious claims, so it’s very important to optimize the hit rate”. However, insurtech has embedded algorithms that flag unusual patterns that human detectors might miss. Through computer vision, the AI can identify and assess the damages, scaling nuanced detail from digital pictures far more accurately and efficiently than a human. AI thrives on big data and detection, learned using historic fraud pathways to establish predictable patterns, which helps reduce the large insurance fraud sum, thus lowering customer premiums.
How Can Insurtechs Attract New Customers?
When faced with choices, people usually stick to the status quo, which is beneficial to traditional insurance companies. Insurtechs attract new customers who have previously had no involvement in insurance, most commonly millennial and Gen Z generations. There has been no significant migration of insurance clientele to the greener grass of insurtech, despite the alluring temptations. However, over time the embers of the insurance industry might be stamped out as millennials and Gen Z become older, where insurtech becomes the new status quo.
We are on the trajectory towards a digital personal assistant, monitoring your activity and determining its relative risks for each action. As insurances become more personalized, and digital monitoring becomes more embedded, your insurance could increase in price as you engage in more risky activities, a big brother system that blurs the line between personalization and intrusion. Going rock climbing after a day in the office could take a toll on your muscles and your insurance prices.