AI in Insurance
Why ChatGPT is likely not good enough for insurers
Based on the breathless assessment of some commentators, ChatGPT is poised to replace contact centers in every sphere of business – including the armies of agents currently employed in the insurance industry worldwide. Even the World Economic Forum predicts 14 million jobs will disappear globally over the next five years, partially due to the rise of AI technologies.
Really?
Look, large language models are a great leap forward for AI. They have an amazing ability to write and display an understanding of information. But perception is not always reality.
In 2011, the IBM Watson supercomputer scooped up a $1 million prize on the American TV show "Jeopardy!" besting champions Brad Rutter and Ken Jennings. IBM donated the winnings to charity. The two men would go on to win future games. Watson "has been reduced to a historical footnote," The Atlantic reported in a May 5, 2023, essay, "America Forgot About IBM Watson. Is ChatGPT Next?"
By 2014, Amazon launched Alexa, which amazed everyone with its ability to understand speech. But once the novelty wore off, people became disinterested in structuring sentences in specific ways to get the right result. Less than two years later, Google introduced Google Assistant, which was better at understanding verbal questions and searching for answers. Yet even today, it is as likely to produce meaningless results as it is to help.
Jonathan Boylan, Chief Technology Officer, FINEOS
Insurance Regulators Continue to Grapple With the Rapid Development and Use of Artificial Intelligence
On August 13, 2023, insurance regulators and the insurance industry met in Seattle, Washington at the NAIC Summer Meeting and continued to address the challenges of monitoring and regulating the insurance industry’s use of artificial intelligence. The NAIC Innovation, Cybersecurity, and Technology (H) Committee, as well as, the State of Colorado, are leading the efforts to produce regulatory frameworks for the insurance industry’s use of AI.
During the NAIC Summer Meeting, Colorado Insurance Commissioner Mike Conway spoke at a breakfast briefing sponsored by the American InsurTech Council. He discussed the status of Colorado SB 169 rulemaking (Proposed Algorithm and Predictive Model Governance Regulation (“CO Proposed AI Regulation”)) as well as the NAIC Exposure Draft of the Model Bulletin on the Use of Algorithms, Predictive Models, and Artificial Intelligence Systems by Insurers (“NAIC Draft AI Bulletin”). Commissioner Conway indicated that the current version of the CO Proposed AI Regulation will apply across all lines of insurance and will include a testing component. He also said that he was pleasantly surprised with the life insurance industry’s level of cooperation.
In addition, Commissioner Conway reported that he had just met with Google and Microsoft this past week as Colorado continues to understand how AI is being used in the insurance industry. When questioned about the NAIC Draft AI Bulletin, Commissioner Conway said that “it is going in a good direction.” States may diverge on the issue of testing, but Colorado wants insurers to test algorithms to prevent unfair discrimination. When questioned about the industry’s concern for protecting the confidentiality of AI data and information provided to Colorado, Commissioner Conway suggested that the new Colorado law includes confidentiality protections, but to the extent that an insurer continues to have concerns, he may consider accepting the information under the market conduct exam powers to provide additional confidentiality protection.
Finally, while Commissioner Conway did not commit to an implementation date, he did indicate that given Colorado’s resources and other high priority concerns, for example, wild fires, it would be at least six months before the new regulation will be implemented.
How insurers can boost underwriting with quality data
Prioritizing data-driven underwriting modernization extends beyond large insurance organizations, especially for commercial business. Midsize and growing insurers are increasingly adopting artificial intelligence and large language models to enhance access to critical risk-quality data for underwriting proficiency. Insurers of all sizes, as well as managing general agents and program administrators, are taking advantage of intelligent data-delivery platforms.
It's not just insurers that must modernize precise risk assessment and quoting workflows. Insurance distribution channels also play a vital role for intermediate-level insurers, particularly in small and medium commercial markets. Business owners frequently require guidance and personalized attention from agents and program administrators/MGAs to ensure they obtain the right coverages. Clearly, policyholder expectations are evolving rapidly, with demands for quicker, accurate quotes as well as efficient policy issuance, service, and renewal management.
With cognitive technologies and the vast scope of reliable data they can source and supply, insurers and their distributors now have the means to deliver a seamless experience for policyholders. By harnessing the power of generative AI for real-time exposure data, insurance organizations can offer precision policy pricing and exceptional service to agents and MGAs, including application prefill during the quoting process for standard lines of business. Simultaneously, this technology helps expand portfolios by identifying profitable accounts that align with the risk appetites of insurers and their distributors.
What can insurance companies gain from process automation? Learn more about how insurance companies can leverage process automation to drive business growth.
Sathish Kumar Manimuthu CTO , NeuralMetrics
Benefits and Challenges of Adopting InsurTech Benefits and Challenges of Adopting InsurTech
Technologies such as artificial intelligence (AI) and data analytics are transforming the way many industries do business, and the insurance industry is not immune to this transformation. In fact, the insurance industry is becoming more acutely aware of their need to step up in this department.
Tech is a top concern among insurance agencies—or should be, at least—when looking to future-proof their business. In 2021, independent insurance agencies that were low and medium digital adopters grew their revenue an average of 10% year over year, but high digital adopters grew 17% year over year—a 70% higher growth rate than other agencies, according to the Liberty Mutual and Safeco Insurance “2022 Agency Growth Study."
The insurance industry is seeing a surge in innovative tech involving AI, machine learning, big data and the Internet of Things (IoT). Most tech is solutions-based in the form of an online or cloud-based platform. However, some tangible tech can also be used to enhance the insurance industry, such as drones to monitor weather and catastrophe patterns.
For example, insurance agencies that process property claims can track weather conditions and adjust policies accordingly, offering enhanced coverage in times of elevated risk of natural disaster. Being aware of these changes through drone sensors, claims management systems, and predictive analytics can help insurers mitigate the impact of worsening climate change.
There are also smart contracts that use blockchain technology to automate the underwriting process and issuance of policies. InsurTech solutions exist for appetite, data, payments and quoting.
News
Surge in U.S. thunderstorms has caused 'unprecedented' $34B US in insured losses this year
Waves of severe thunderstorms in the U.S. during the first half of this year led to $34 billion US in insured losses, an unprecedented level of financial damage in such a short time, according to Swiss Re Group, as climate change contributes to the frequency and severity of violent meteorological events.
Damages from convective storms in the U.S., those that can come with hail, lightning, heavy rain and high winds, accounted for nearly 70 per cent of the $50 billion US in global catastrophic damages so far this year, the reinsurer said Wednesday. Those global figures include earthquakes in Turkey and Syria.
The storms in the U.S. were so severe, there were 10 that resulted in damages of $1 billion US or more, almost double the average recorded over the past decade, according to Swiss Re, and Texas was the state most severely effected.
“The effects of climate change can already be seen in certain perils like heatwaves, droughts, floods and extreme precipitation,” Swiss Re Group Chief Economist Jerome Jean Haegeli said in a prepared statement. “Besides the impact of climate change, land use planning in more exposed coastal and riverine areas, and urban sprawl into the wilderness, generate a hard-to-revert combination of high value exposure in higher-risk environments.”
What Sparks US Wildfires: Power Lines, Burning Trash and Lightning
The fast-moving fire that ripped through Maui’s historic town of Lahaina killed more than 90 people, making it the deadliest US wildfire in more than a century. The cause of the blaze is still under investigation, but power equipment in the area is coming under increasing scrutiny.
Across the nation, wildfires are growing in intensity and frequency as climate change sparks prolonged droughts. The initial cause can vary — a spark from downed electric lines, a lightning strike or a cigarette butt tossed out a car window — but the result is the same: Once vegetation dries out, it can easily ignite.
Here’s a look at recent major US wildfires.
Camp Fire
In November 2018, flames leveled the California town of Paradise, killing more than 80 people and destroying more than 18,000 structures. It was the state’s deadliest and most-destructive fire, according to the California Department of Forestry and Fire Protection, known as Cal Fire.
The fire was blamed on power lines operated by the state’s largest utility, PG&E Corp. The company eventually filed for bankruptcy in 2019, facing $30 billion in liabilities from several devastating wildfires, and in 2020 it pleaded guilty to more than 80 counts of involuntary manslaughter for its role in starting the Camp Fire blaze.
AM Best: Top global insurance brokers in 2022
Despite making progress in bouncing back from the COVID-19 pandemic, rising costs driven by higher interest rates, inflation, supply chain issues and major natural catastrophes made for a rough 2022 for the U.S. property and casualty insurance industry. According to the National Association of Insurance Commissioners (NAIC), higher earned premium was not enough to combat higher losses for U.S. insurers, which resulted in the steepest underwriting loss since 2011.
However, analysis from IRMI shows 2022 market conditions were favorable for insurance brokers globally, as customers began to see these insurance professionals in a more advisory light. The shift from brokerages being seen as transactional entities has been influenced by changes in the market which have driven customers to seek out expert insight on coverage options and market trends.
IRMI predicts the growth seen by brokerage firms as a result of increased policy demand should continue enhance the growth of brokers in the coming years – especially with the availability of AI technology to help them better meet the needs of customers.
In the slideshow above, we’ll look at the ten highest-performing global insurance brokerages of 2022, according to AM Best.
Commercial premium increase up slightly in Q2: CIAB
Commercial property saw the largest increase at 18.3%, though lower than the 20.4% increase seen in the first quarter. Natural catastrophe losses and rising property values due to inflation were again cited by respondents as the primary drivers.
Cyber premiums rose by just 3.6%, down from 8.4% in the first quarter – one of the strongest signs of relief for the line seen so far, and insurers added capacity, the report said.
In other major lines, commercial auto rates rose 10.4% in the quarter, up from an 8.3% increase in the first quarter; umbrella liability rates rose 8.1%, down from 8.5%; general liability rates rose 5.2%, up from 4.6%; and workers compensation rates fell 0.7% compared with a 0.5% decrease.
The second quarter marked the 23rd consecutive quarter of rate increases, the report said.
Commentary/Opinion
Rethinking Insurance With a Gen Z/Millennial Mindset
Welcome to the new age of customers!
Nearly every organization that sells its products and services in a B-to-C market goes through product, channel and service shifts brought about by consumer demand. Shifting business strategy to meet the customer is nothing new. Sometimes these changes are enacted through acquisitions. Sometimes they are brought about by greenfield business units. However, they come about, they are essential for long-term survival and growth. Consider some popular brands you know, and you can see the shifts in action.
Banana Republic was once a safari and travel clothing outfitter that even sold books. QuikTrip and Wawa were small-scale "convenience" grocers without fuel sales. Sony’s most popular product was once a Walkman tape player. KitchenAid was just a mixer company.
Every company is shifting as customers shift, and insurance is no different.
Insurers are in a transition between what they once were and what they may one day become. You may see this transformation happening in your own organization. What if one day your company generated significantly more profitable income from services, side offerings and partner products than it did from some of your core insurance products?
If you knew this could happen, how would it change your plans? The idea is not unprecedented. In a business world flush with new opportunities, executives commonly push their companies in the direction of customer demand and profit, not necessarily in the direction of the organization’s core competency.
That means it is always the right time to understand what the customer is thinking and needing and where customer demand seems to be growing.
Majesco recently released its annual consumer trends report, Enriching Customer Value, Digital Engagement, Financial Security and Loyalty by Rethinking Insurance. We assess the top-of-mind issues for today’s customers and look at how Gen Z and Millennials especially are looking for ways to achieve financial wellness — across all financial aspects of their lives, including P&C and L&AH products. How will technology-enabled products and value-added services add up to optimal insurance offerings for today and the future?
Denise Garth is senior vice president, strategic marketing, responsible for leading marketing, industry relations and innovation at Majesco
Navigating the insurance talent crisis for a resilient future
Upcoming or younger members of the workforce do not see a career in insurance. Only 4% of respondents to The Hartford's 2015 Millennial Leadership Survey found insurance to be appealing. And ACORD's 2020 survey found even less interest from the generation that will make up 75% of the global workforce by 2025. Keep in mind that only 25% of insurance employees are under the age of 35.
People are leaving the insurance industry
The insurance industry will lose half its workforce between now and 2036 as almost 400,000 employees retire. Most P&C carriers expect to increase staff during the next 12 months while finding most positions challenging to fill and facing more than 10% voluntary turnover. The hiring pool is limited for entry-level and experienced talent, with 65% of people leaving an insurance job also exiting the industry. The leading reason why employees quit is a need for more career development and advancement.
Our call to action
Insurance needs to reclaim its brand in the world. This is above and beyond the hard work that individual carriers, brokers, and agencies do to articulate and reinforce their products, services, and experience. I am referring to an industrywide effort for insurance to take back its voice to tell its own story. Borrowing a page from Simon Sinek's "Start with Why," insurance has a noble purpose and a critical reason to exist. We have inadvertently allowed the insurance story to become an amalgamation of carrier advertising, less-than-flattering attorney commercials, and the media's appetite for only the bad news.
Insurance has a compelling and unique talent story that, if told, can both drive employee engagement and strengthen recruiting. If you've not worked within an insurance organization, all you may understand comes from a few insurance interactions and advertising. You wouldn't have had the exposure to realize there is work that matches any combination of creative, analytical, and technical passions. You wouldn't have the context of the insurance value proposition to appreciate the motivation that comes with a larger sense of purpose.
A multi-dimensional talent development strategy is critical to build an organization that operates both horizontally and vertically and can adapt to change. Companies need specialists and generalists for strategies and execution to have both a top-down and bottom-up perspective. Career journeys that are co-owned by the employee and employer replace a career path predefined by the company. Flexibility is vital to recognize that vertical and horizontal journeys are not mutually exclusive.
Meredith Barnes-Cook Partner, Consulting, ReSource Pro
The Future of Embedded Insurance: Revolutionizing the Future of Coverage
Embedding insurance products into an existing purchase experience holds immense potential for transforming the insurance landscape as we know it.
In the ever-evolving landscape of the insurance industry, embedded insurance has emerged as a groundbreaking concept that is reshaping the way we think about and interact with insurance products. Embedded insurance integrates insurance seamlessly into the products or services people already use, eliminating the traditional friction associated with buying and managing insurance policies separately. In this blog post, we will explore the concept of embedded insurance and its potential to transform the insurance industry.
The Rise of Embedded Insurance
Embedded insurance refers to a model that integrates insurance offerings into the purchase process of products or services that are not traditionally associated with insurance. It allows businesses to provide peace of mind to customers by extending insurance coverage as part of the overall package through a streamlined, low-touch buying experience. It eliminates the need for customers to seek separate insurance policies or leave their purchases uncovered, and instead offers protection directly at the point of need.
This innovative approach has gained significant traction across various industries, including fintech, e-commerce, mobility, and healthcare. One example of embedded insurance that many consumers may have already interacted with is related to booking travel and accommodations. Travel platforms and service providers offer trip, flight and other vacation protections that can be added to their purchase in the moment. By integrating these coverage options into the purchase experience, consumers can seamlessly protect what is important to them in a simple way.
Ernst Renner, Partner and Head of the US Insurance Practice, Capco
InsurTech/M&A/Finance💰/Collaboration
Cover Whale and Aon's CoverWallet to Expand Comprehensive Trucking Insurance Access
Cover Whale Insurance Solutions, Inc., a leading commercial trucking insurance provider and fast-growing insurtech, today announced its strategic agreement with global professional services firm Aon's CoverWallet, a leading digital insurance platform for small business owners.
The collaboration brings together the innovative capabilities of two leading insurtech solutions by combining Cover Whale's trucking insurance capacity with CoverWallet's distribution strengths. As part of this relationship, Cover Whale offers its advanced telematics and proprietary quoting and binding technology to CoverWallet's independent owner-operator and small fleet trucking customers, a traditionally underserved segment of the insurance market.
"As we continue to grow, we are continuously looking for ways to connect with more drivers and fleets across the country," said Dan Abrahamsen, CEO of Cover Whale. "Our top priority has always been keeping the roads safe. This agreement allows us to simplify the insurance process for truckers looking for fast, customizable coverage that helps them drive more, earn more, save more, and focus on the road."
The CoverWallet platform will extend Cover Whale's visibility to thousands of commercial truck drivers across the country. As a result, small business owners and trucking fleet operators will be able to access tailored insurance policies designed specifically for the trucking industry, a diverse clientele with a wide range of insurance needs, all within one intuitive and streamlined platform.
"We are thrilled to work with Cover Whale to support independent owner-operator and small fleet trucking customers with their insurance needs," said Jeff Borgman, Director of Transportation Programs for CoverWallet, an Aon company. "This collaboration enhances our offerings for commercial trucking customers, and we look forward to introducing them to innovative solutions as an additional avenue to safety, helping them make better-informed decisions about their insurance coverage."