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How insurance companies exploit their full data potential

The use of artificial intelligence is already playing a key role in the insurance market – 4 Key trends and 3 theses defining the future of AI

– Abstract

Artificial intelligence, or AI for short, will significantly change the insurance market

Those who do not participate risk remaining competitive. There are major, emerging competitors in this field. New players are changing the insurance market from within their own industries. Access to customers is being redefined as comparison portals, Western GAFAs such as Google and Co., are entering the market. This means that insurance companies must invest in innovative business models and platforms at an early stage. To shape new products for this evolving market, they must make intensive use of technologies (home turf of GAFAs) such as data analytics and artificial intelligence. You could also say: No insurer can avoid the deployment of innovative, AI-supported solutions anymore.

No insurer can compete without AI anymore

Welcome to the future of insurance! No technology (since the invention of the Internet) is likely to shake up insurance companies as much as the triumphant advance of artificial intelligence (AI). It holds high business potential; enables innovation and minimizes risk. Associated technologies such as neural networks advance not only analysis but forecasting, deriving knowledge from data and automating decisions.

Technologies such as data analytics and AI open up new opportunities by leveraging optimization potential in very different business areas and helping to bring new profitable products and business ideas to market. Although the basic technologies have been available for many years and have long been in use, it is only today that the extensive AI application possibilities for the finance and insurance industry are becoming more mainstream.

Of course, regulators expect insurers to reliably comply with legal frameworks: The General Data Protection Regulation and the E-Privacy Directive are indispensable, as are MaRisk (VA) and VAIT compliance. Further regulations such as the EU Artificial Intelligence Act are on the way.

Companies must proactively shape the area of tension between innovation and data use as well as data protection and their corresponding ethical frameworks accordingly.

As the insurance market is facing increasingly pervasive technology changes, it urgently needs AI engagement

The transformation in the insurance sector is in full swing, and the causes of cultural, process, and systemic change are obvious: First, customers have long been accustomed to easy, convenient access and immediate responses from the digital world. Second, new players are entering the market and fighting for market share. Here, in particular, international insurance groups from the Far East such as Ping An and big tech companies such as Tesla or Amazon are masters at occupying the customer interface. Comparison portals or so-called added services such as Verivox or Check24 are also gaining momentum. Thirdly, new products are changing the market: The objects to be insured are becoming more intelligent and more convenient for users. It makes sense to intelligently design the right insurance policies. Promising examples are data-based pay-per-use tariffs, sensor technology for industrial insurance or adaptive personal insurance. You could also say:

Software used to be in control of the world, now AI is overtaking the software universe

The new players in the insurance market are data-driven and use their information about customers, products and markets to the fullest. To this end, they have long been investing heavily in artificial intelligence and other smart technologies:

These 4 AI trends will establish a new insurance business environment

Trend 1: 
The Internet of Things (IoT) produces exponentially growing data volume  – an optimal environment for AI

Networked end devices, smart, wearable health gadgets (fitness trackers in smartwatches, etc.), sensors at neuralgic points in the house or car are causing massive data growth. Experts estimate that by 2025, up to one trillion networked devices worldwide will measure and transmit information.

Exponential data growth and emergence of new product lines are closely related

This is the prediction of a study by the World Economic Forum. As a result, completely new product categories will also emerge in the insurance context. From smart health services and adaptive building insurance to loss-preventing industrial solutions.

Trend 2: 
From virtual assistants to robotics they digitally mapautomated processes 

Digital assistants will support more and more areas of life.

  • Private customers ("What is the right offer for me as a customer? I receive a warning in case of acute risks.")
  • Business customers ("What is the risk situation and coverage in my company?")
  • Insurance sales ("What products does the customer need? How do I address them ideally?")
  • Administration (“What is the best next step in customer interaction?”).

All these assistants need data and data analytics to determine the appropriate actions and interact smartly, digitally and automatically.

Robotics not only brings new forms of mobility, but also a new set of tariffs: By 2030, the majority of vehicles will be autonomous - at least in part. Sooner or later, these vehicles will have robotic components. While many other industries are open to such technologies, this means that insurance companies will have to provide suitable risk assessments. Customer requirements are also changing in the sense that insurance companies must provide new products along with communication and sales channels.

Trend 3: 
Open-source technologies and data ecosystems are gaining in importance; cloud solutions increase organizational flexibility

The available open-source AI technologies and frameworks often bring more up-to-date algorithms or methods compared to existing commercial products. They lower the barrier to entry for the use of AI technologies. Data platforms enable business opportunities through data sharing. For example, an insurance company can significantly increase its sales opportunities through customer interactions. It goes without saying that the corresponding platforms must be securely designed and compliant with existing and evolving regulatory requirements.

Although banks and insurance companies have been cooperating for years, completely new relationships will emerge in the future. These include wholesalers, which offer insurance as an added service, and the freetime app, whose usage data can be used to generate instances for interactions with insurance companies. Increasingly, cross-company data platforms will emerge that exploit more potential from industry cooperation - if necessary, even as a data trust model. With Open Insurance, the industry association Bitkom is driving forward such an initiative. A technical network of insurance, service provider and customer services that seamlessly interlock to generate an almost endless source of transaction data. For example, the inclusion of a camera in the household insurance policy at the time of purchase or intelligent water pressure detectors that warn insurers and service providers of potential water damage. These are just two examples of many that insurers and service providers are already jointly developing.

Cloud solutions provide more flexibility to organizations

With the help of cloud providers, such solutions can be put into production and maintained more quickly and easily. Hyperscalers make it possible to scale these solutions (also across company boundaries) at the click of a mouse - regardless of any specialized requirements and depending on how high the transaction volume actually is. Integration of as-a-service offerings is then possible with very current technologies: whether "serverless" with AWS Lambda or in a low-code classic configuration such as a virtual compute unit.

Trend 4: 
Cognitive technologies are progressing

While neural networks and deep learning technologies were until recently mainly used only for image and speech recognition of unstructured texts, various industries are increasingly using these applications to dissect and infer information - much like the human brain does.

Emulate the human brain

These solutions will be able to analyze and interpret complex relationships, drawing conclusions from these insights. 

AI-assisted reasoning opens up wide range of applications

This enables a wide range of applications: from speech comprehension and generation (also technical language, concerns, i.e., "intent" recognition, etc.) to psychographic profiling for customer segmentation in marketing.

Further expanding subscription models: 
Helping to navigate disruption in the insurance business

Compared to other financial service providers, which generate their fees largely on a transaction basis, insurers have long focused on subscription models. For this, customer orientation and customer loyalty are indispensable. Because only then do regular payments flow and automatic renewals occur. The only premise: Insurers must address consumers more frequently and, above all, be more creative in their dialog with them.

They also need to offer products and services that reflect people's realities. Those who miss out on this trend will remain disdainfully product-oriented and will lose out in the long run: when customers migrate to smart financial and insurance offerings from tech giants or InsurTechs. These players will acquire new customers via innovative subscription models bypassing the traditional insurer.

3 AI theses for the insurance business

Because the speed of technological change is accelerating, AI is currently the most important basis for keeping pace with current, rapid market developments (compare trends). But how can this be done at a time when technologies and opportunities are being renewed almost exponentially and one trend follows another? Three theses:


AI changes the value creation of insurance companies

Artificial intelligence is set to transform the insurance industry in seismic ways - from underwriting and pricing to claims processing and partner integration. AI and data ecosystems are helping to calculate, price and sell policies in real time. The same is true for claims review and settlement. In short, artificial intelligence will soon affect the entire value chain of insurance companies.


AI is a value driver of process automation around business models and product development

AI optimizes closing and pricing

Technologies bundle information from different end devices, interfaces, service providers, reinsurers, manufacturers, and suppliers into corresponding data pools and streams. This enables insurers to make ex-ante decisions and create product bundles that are precisely tailored to customer needs - depending on the risk profile and product requirements for liability coverage.

AI accelerates insurance sales

From the customer's point of view, the purchase decision and conclusion are faster and more convenient. For example, thanks to sensor-laden end devices, houses, cars, people (keyword: IoT, Internet of Things) and external data on individual behavior, consumers have to contribute far less data to an application. This is because customer analytics are running in the background, working with measurement data, for example, to enable telematics tariffs. Algorithms calculate the appropriate risk profiles granularly and directly on this basis.

This can reduce the time it takes to close a deal to a few minutes or even seconds. At the same time, as self-learning pricing algorithms continue to mature: in the near future, we will see a correspondingly large number of new insurance products that are also suitable for the mass market. At the same time, agency employees will be able to bring comprehensive customer information into an advisory meeting: for example, purchase factors for the various product groups, cancellation probability or claims processing affinities.

AI processes claims autonomously - sensors and IoT support risk monitoring and loss prevention

Claims settlement will be fully automated - with a first-contact resolution rate of more than 90 percent. This improves settlement times in particular, for example when an overseas container equipped with sensors reports water ingress during transport, checks for damage in accordance with insurance conditions and initiates the settlement process. In this way, settlement quickly takes place not within days, but within hours or even minutes. In the future, sensors in monitoring units such as drones, as important tools, will send streaming videos and report damage or unplanned temperature rises; in the event of liability, they will algorithmically trigger case decisions and entire regulatory processes.


AI is a value driver of data and AI-based automated online product distribution

The share of direct insurance is growing steadily and the market is fiercely competitive. Comparison portals occupy the interface to the customer and siphon off revenue by clamping down on this customer interface. With the help of customer information such as channel affinities, purchase probabilities, preferences for addressing, and psychological profiles, artificial intelligence thus supports insurers in expanding their direct business. This enables them to address their customers individually and in a way that is tailored to their target group, from the first click during the search to the conclusion of the contract.

– Conclusion

When insurance companies take off technologically

Much of what will happen in the insurance business technologically has long been visible on the horizon. Whether it will take six months or two years before data-based business models, the Internet of Things, robotics as an AI discipline or even open-source technologies and cognitive tech has a relevant impact on the insurance business - remains to be seen. One thing is certain, however: those who pick up on these trends early on and start now will have a good chance of continuing to be successful in the future. What measures insurance companies should take to lay the foundations for their AI strategy is another matter.

Thomas Löchte is Managing Director of IKOR Informationsfabrik with a focus on data analytics.


Thomas Löchte

Managing Director
+49 251 919979-0

"As the pace of technological change is accelerating, AI is currently the most important foundation for keeping up with current, rapid market developments."

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