AI in Insurance
[Ed. Note: Highly Recommended] Artificial Intelligence at State Farm
State Farm is a large insurance company headquartered in Bloomington, Illinois. Its main lines of business include property and casualty insurance, as well as auto insurance. The company is the leading auto and home insurer in the United States.
In the 2023 Fortune 500 list, State Farm ranked 44th, showing its strong market position. According to its 2022 annual report, the company earned over $46.5 billion in premiums. However, it reported record underwriting losses – $13.2 billion – resulting in a net loss of $8.7 billion.
According to the most recent employment numbers (2019), the company employs approximately 58,000 people.
State Farm is proactively seeking innovative solutions, AI-based and otherwise, to gain an edge in a highly challenging and competitive industry. State Farm Ventures, launched in 2018 with $100 million in venture capital, appears to invest in tech-driven startups, including those that are AI-focused. The subsidiary invests up to $5 million per company, according to its site.
In this article, we examine two timely, relevant AI use cases that will be of interest to any insurance executive.
Emerj Artificial Intelligence Research
How to overcome A.I. shortcomings to benefit your insurance business
In the past year, business leaders have considered how to use artificial intelligence to its maximum potential.
Leaders in the insurance industry have a secondary consideration: How can we do this without negative impact, operating in a highly regulated and complex industry?
The answer, for many, is using existing large language models (LLMs), such as GPT-4, combined with your company’s proprietary data, to bring dramatic change to customer service operations while saving millions of dollars. And you can do it without hiring an AI expert team of data scientists and engineers.
I’ll explain how using one case study of a preexisting, small team that did this by launching a “super-chatbot” at Jerry.
But first, you shouldn’t set out to use AI simply because you feel like you should. You need a good use case.
Ask yourself two questions:
- What customer problem are you trying to solve?
- What business problem are you trying to solve?
In our case, both answers had a common denominator: Reducing customer response wait times. In April, before we deployed our super-chatbot, our human agents handled 100% of messages received from about 100,000 unique customers a month. We were able to reply to only about half of our customer messages within 24 hours.
John Spottiswood is chief operating office for Jerry
Sedgwick's chief digital officer on journey to 'tactful' generative AI use
In the last two years, better algorithms, larger models, and more expansive datasets have vastly accelerated the output of generative artificial intelligence (AI) – and the insurance industry has taken notice.
Many insurance organisations have said they are experimenting with various applications of ChatGPT and other large language models in a responsible way.
For Leah Cooper (pictured), Sedgwick’s newly appointed global chief digital officer, the real challenge in weaving generative AI into the insurance ecosystem was taking a tactful approach.
“In the last year, generative AI has been the talk of everything. How do you use it responsibly, but [also] how do you also use it tactfully?” Cooper said.
“I think the tactful part has been one of the biggest challenges for companies who want to harness the power of gen AI but don’t know how to apply it to what they do. One of the fun things that I get to do is figure out how to make that relevant to us.”
Cooper’s role is newly established at Sedgwick, a global claims solution provider. As chief digital officer, Cooper is tasked with spearheading Sedgwick’s initiatives in technology research and development and advancing its digital roadmap and transformation strategy.
Research
Worse? Why Personal Auto Loss Ratios Are Even Higher in 2023
Even though direct written premiums for U.S. personal auto insurers soared by double-digits and economic inflation has eased, personal lines underwriting results did not turn around during the first half of 2023, AM Best reports.
In fact, according to a chart included in the Best’s Market Segment Report, “U.S. Personal Auto Results Worsen as Claims Severity Rises,” the industrywide direct loss ratio for U.S. private passenger auto liability for the first half of 2023 actually rose 3.6 points to 75.6 over the 72.0 ratio recorded for first-half 2022. Similarly, the auto physical damage ratio, coming in at 76.0 in 2023 for the first six months, was 3.8 points above the 72.2 level AM Best calculated for the same period in 2022.
“In the numbers through midyear, we really haven’t seen the improvement that we would like to talk about for the overall private passenger auto industry,” AM Best Associate Director David Blades said on a video posted on the AM Best website highlighting some key takeaways from the report published yesterday.
News
FTC Announces CARS Rule to Fight Scams in Vehicle Shopping
Combating Auto Retail Scams (CARS) Rule targets bait-and-switch tactics, junk fees; includes clear protections for military members, who are frequent targets for vehicle scams.
The Federal Trade Commission has obtained proposed orders against the operators of a wide-ranging scheme known as “The Sales Mentor” that made millions by falsely promising consumers that they could make big money from telemarketing sales.
The defendants have agreed to proposed court orders that would require them to pay a total of $1 million for consumer refunds.
In a federal court complaint, the FTC charged the Tennessee-based group of companies, their owners, their officers, and a former sales director with deceiving consumers to pay hundreds or even thousands of dollars for supposed telemarketing training programs that rarely, if ever, delivered on what was promised. In addition, the FTC said the companies continued to make deceptive earnings claims even after they received the FTC’s Notices of Penalty Offenses on money-making opportunities and on endorsements and testimonials warning them that such conduct is illegal.
“Traffic and Funnels lured people looking to work and earn an income with false or unfounded earnings claims, even after receiving legal notices from the FTC about the illegality of such conduct,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection.
“The FTC will continue to crack down on deceptive earnings claims that cheat consumers.”
Commentary/Opinion
Insurers Heavily Exposed to Impact of Climate Change: Global Watchdog
Insurers are heavily exposed to the impact of climate change and also face risk from their alternative investments in reinsurance, the International Association of Insurance Supervisors said in a report on Wednesday.
Insurers continue to have “material exposure” to climate change through investments in fossil fuels and energy-intensive industries, as well as through their underwriting of natural catastrophe risk, the global insurance watchdog said.
This exposure could hit insurers’ profitability and eat into their capital buffers, according to the IAIS, which is made up of insurance regulators from the G20 and other economies.
After a year of record temperatures, COP28 talks in Dubai this week until Dec. 12 are seeking to overcome differences on the future of fossil fuel – the burning of which is the main cause of climate change.
Aggregate scores measuring the systemic risk of the insurance sector declined slightly in 2022, due to a drop in asset prices. However, insurers are “significantly” less risky than banks, the IAIS report found.
Reporting by Carolyn Cohn; editing by Kirsten Donovan
Data will drive personalized insurance experiences in 2024
Technology drives efficient and personalized insurance experiences in 2024.
This has been an eventful year that leaves me with a mix of feelings. Interest rates have surged, and the economic environment is weighing on consumers and the tech workforce, leaving them feeling grim about the future. Natural disasters continued — in fact, 2023 hit the record books as having the most number of climate disasters in a year. Major climate events — and the impact they have on those affected are leaving many of us with a heavy feeling. This year, tech-savvy criminals made us realize why cyber and data security needs to be a top priority for companies. Recent data breaches and the ripple effects have left millions of people vulnerable. Like it or not, cybercrime has grown to be the "industry within" nearly all aspects of business and technology (and insurance).
While these moments are unsettling, 2023 also gave me plenty to feel optimistic about. The fluctuating global economy, the emerging risks, and the evolving regulatory landscape remind us that the insurance industry is here to prepare us for the unexpected.
Jess Keeney, Chief Product & Technology Officer, Duck Creek
Making the Claims Process More Efficient
Technology can transform traditional practices, elevating efficiency and enhancing overall policyholder experiences.
In today's digitally driven landscape, insurance companies must implement efficient processes to enhance the claims process, both internally with insurance professionals and externally with policyholders. Technology serves as the catalyst for transforming traditional practices, elevating efficiency and enhancing overall policyholder experiences. The integration of technology not only addresses longstanding inefficiencies but also opens doors to opportunities, positioning the industry at the forefront of innovation.
Clay Rising, chief claims officer, Brush Claims
InsurTech/M&A/Finance💰/Collaboration
InsurTech Coalition launched to lend “specific voice” on regulatory matters
Members of the newly launched InsurTech Coalition have been working together loosely for “quite some time”, but following a recent push from regulators the group decided to formalise the union and create a unique trade body with “a specific voice” for insurtechs.
- InsurTech Coalition membership includes firms across P&C, life and health
- Will provide a “specific voice” on issues more important to insurtechs vs incumbents
- Areas of focus include speed to market and implementing standards around AI
- Aims to collaborate with regulators to dispel misconceptions around insurtechs
- Being a “tech-enabled insurance carrier is not something that's inherently bad”
- Looks to partner with existing trade bodies; pricing variables not a “top-five” issue
Outlining the group’s key objectives in an interview with The Insurer, regulatory executives from Branch, ClearCover and Boost also noted that InsurTech Coalition has secured involvement from commercial lines firms which have yet to step forward publicly.
AAA Takes Care of Its Members - And Pets Too - through Partnership with Spot Pet Insurance
Spot Pet Insurance plans will be discounted for AAA members across the U.S.
Spot Pet Insurance, a leading pet insurance provider, is announcing an exclusive partnership with AAA, one of North America's largest and most trusted membership organizations. This strategic collaboration aims to offer AAA members unparalleled access to comprehensive and affordable pet insurance coverage for their furry companions.
Through this partnership, AAA members will gain access to Spot Pet Insurance's tailored pet insurance plans designed to help provide financial protection for unexpected veterinary expenses and routine wellness coverage for cats and dogs. Spot Pet's commitment to delivering top-notch pet insurance aligns seamlessly with AAA's dedication to enhancing the well-being of its members, including their beloved pets.
Spot Pet Insurance, a leading pet insurance provider, is announcing an exclusive partnership with AAA, one of North America's largest and most trusted membership organizations.
"Our exclusive partnership with AAA will bring our high-quality pet insurance solutions to their millions of loyal members," said **Spot Pet Insurance President Scott Taylor. "Our shared commitment to providing exceptional service and support aligns perfectly, and we look forward to helping AAA members ensure the health and well-being of their cherished pets."
People
CRAWFORD & COMPANY® APPOINTS JEFF VAN FLEET TO SENIOR VICE PRESIDENT, CLAIMS OPERATIONS, GLOBAL TECHNICAL SERVICES
Crawford & Company® (NYSE: CRD-A and CRD-B) is pleased to announce the promotion of Jeff Van Fleet to the position of senior vice president, claims operations, Global Technical Services (GTS).
This promotion reflects Van Fleet's consistent dedication, unparalleled expertise and outstanding contributions to the company's success.
With an extensive history in the insurance industry, Van Fleet has been an invaluable asset to Crawford since re-joining in 2023. Throughout his tenure, his exceptional leadership skills and commitment to excellence have been evident, leading to numerous achievements and significantly enhancing the organization's claims operations department.
In his new role, Van Fleet will be responsible for shaping the strategic direction of GTS claims operations. He will play a pivotal role on a team of dynamic professionals responsible for efficiently managing and resolving claims. Van Fleet's appointment reaffirms the commitment to providing unparalleled service and support to their valued clients.
Paul Kottler, president, U.S. GTS, had this to say of the important change: "Jeff's proven expertise and exceptional track record make him the ideal candidate for this position. We have the utmost confidence in his abilities to propel our GTS claims division to even greater heights."
Canada
Intact chief strategy officer on striking the affordability-profitability balance
Four strategies for the P&C industry
The property & casualty (P&C) insurance industry faces a delicate balancing act between insurance profitability for insurers and maintaining affordability for customers as it grapples with the impact of extreme weather events and a changing climate.
In a virtual panel with leaders of some of the world’s top P&C insurers, Carla Smith (pictured), executive vice president, chief strategy officer and head of climate at Intact Financial Corporation, emphasized innovation, risk education and mitigation, public-private partnerships, and technology investments as strategies for insurers to embrace amid an uncertain future.
“Sometimes there can be a tension between affordability for customers and profitability for insurers, and at the extremes, this can even become about sheer availability of coverage,” Smith said at the Geneva Association panel on Monday (December 11).
“To avoid that situation, there are a few things, as an industry, that we should be mindful of. First, it’s important to recognize that in many cases, perhaps even most cases, the market already has commercially viable tools to solve for availability and affordability, and we need to take the lead to innovate where we can and where it’s required.”
Carla Smith, executive vice president, chief strategy officer and head of climate at Intact Financial Corporation