US private auto insurance rates see double-digit jump in 2023  September 5th 2023

Will Generative AI Turn Insurers in Favor of Automation?

Insurance company culture may change, but it is more likely to adopt generative AI by arguing for augmentation of existing capabilities rather than automation of jobs

I’ve worked with hundreds of insurance companies over the last two decades, and the industry culture tends to take a “people over process” approach, by which I mean many companies avoid technology investments that are purely about automating people out of jobs. There are obviously many reasons that more issuance, underwriting, actuarial, and claims adjudication tasks haven’t been automated (legacy technologies, agent relationships, complexity) but a culture of maintaining humans in the process is a major explanation given by insurers themselves.

While this is not universal—even insurers who put their people above any technology strategy still take opportunities to automate lower-value areas—this current runs strong throughout the industry, even within large multinational insurers heavily invested in innovation. It has significantly influenced the evolution of insurance IT

Jeff Goldberg is a technology strategist and entrepreneur in the insurance industry who focuses on utilizing technology innovation to drive business growth

When insurance companies use aerial imagery to make underwriting decisions, there are a slew of data privacy rules they need to take into account.

"Where there is great power there is great responsibility." –Winston Churchill

To paraphrase Winston Churchill and Spider Man, with more data and more sophisticated artificial intelligence, comes more responsibility.

Case in point: When insurance companies use aerial imagery to make underwriting decisions, there are a slew of data privacy rules they need to take into account.

For instance, under the California Consumer Privacy Act, any company that collects personally identifiable information must obtain the consumer's consent and notify the person each time it gathers new data. It must also be careful about how it uses and protects that data, and prevent errors such as associating a swimming pool in an image with the wrong homeowner.

Of course, data privacy is just one of many concerns insurers face when they use alternative data and AI to deny or revoke homeowners coverage or refuse to reimburse a patient for a test or medication. There are broader ethical concerns and reputational damage as such cases become public.

Telematics is another technology that is bound to trigger privacy and ethics questions for insurers. A J.D. Power study found that consumer adoption of telematics and usage-based insurance is on the rise, because consumers are seeking to save money on auto insurance. Some consumer advocates worry that insurers could use telematics data to unfairly discriminate against consumers. For example, a customer could be tagged as low-income, and therefore a perceived higher risk, based on location data that show the neighborhoods in which they live and drive.

Actuaries worry about unintended unfair discrimination as they increasingly use AI-based models in their work.

"Historically, eliminating biases has been a challenge for the life insurance industry, and the availability of data and advanced algorithms are changing the landscape of self-selection," Hezhong (Mark) Ma, vice president and managing actuary at Reinsurance Group of America told Digital Insurance this week. "Many companies realize that changes are due and are working to gain clarity around how to test and mitigate unintended biases."

Convergence and the Insurance Ecosystem

Companies must anticipate the future, innovate beyond their core and transform their capabilities as rapidly as technology allows.

KEY TAKEAWAYS:

--Convergence means many parts of the industry are consolidating, and strategic partnerships are proliferating. Platforms and marketplaces are springing up and bringing many product offerings together. Home life and the workplace are converging, as are technologies such as those that enabled the smartphone.

--Today's insurance services will become increasingly obsolete. Drawing on technology, insurers are already shifting their value proposition from “repair and replace” to “predict and prevent.” This shift will change almost every aspect of insurance, including skills requirements, product design, distribution and pricing models.

Stephen Applebaum and Alan Demers