Navigating Shifts In The Personal Lines Insurance Industry Series: Part Three – Data And Artificial Intelligence

The rise of artificial intelligence (AI) has highlighted the importance of data in today's world. However, data has always been a crucial element in the insurance industry...
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The rise of artificial intelligence (AI) has highlighted the importance of data in today's world. However, data has always been a crucial element in the insurance industry, forming the basis of its operations. Insurance is primarily concerned with managing risk, and data helps insurers accurately assess risk, allowing them to determine suitable premiums and coverage levels. The more data available, the better the risk assessment. Furthermore, by tapping into new data sources and extracting valuable insights, insurers can predict outcomes (risk, fraud, claims, customer purchase/churn intent and more) with better accuracy and achieve a significant advantage.

In the final installment of our three-part series focusing on shifts in the personal lines of insurance industry, we look at how data and related technology are redefining insurance.

Technologies Redefining Insurance

Developments in computing power and big data analytics, as well as AI and automation, are driving innovation in new products, platforms, and business models, revolutionizing the industry. Leading insurers are quietly building their capabilities by forming new partnerships, acquiring innovative technology and embracing change.

Here are the key insurance technology trends:

  • Data as a Strategic Asset: Data will exponentially increase in volume, variety and velocity, especially with the advent of 5G. Data will drive managing and even predicting risk, improve operational efficiency, detect and prevent fraud, gain insights into customer behavior, and drive innovation and product development. Data-driven insights and AI will transform insurance from a reactive industry to a proactive one.
  • AI-Powered Solutions and Automation: AI is to digital what digital was to analog. AI is predicted to add up to $1.1 trillion in annual value for the global insurance industry from service and operational gains, McKinsey estimates.1
  • Shared and Trusted Networks: Connectivity and trusted data sharing will increasingly become a necessity as customers share more complex and sensitive information with insurers. In a world where access to data is critical, trusted networked technology architectures become more common.

How Some Insurers Are Reacting to Data-Driven and AI Trends

Major players in the industry are leading the charge in responding to these trends. Reinsurers, larger mature incumbents and Insurtechs backed by venture capital investments are strategically using data and AI. These capabilities will drive growth, profitability and differentiation, and it is expected that other players in the industry will follow suit.

  • AI-Powered Solution: Travelers has enhanced standard vendor-provided catastrophe models with its own "peril-by-peril" risk model. It gives the insurer a refined, granular view of the risk, incorporating proprietary variables, such as complex roof characteristics, tree and brush density and location intelligence down to the parcel level. The insights inform product development, enhance segmentation and take advantage of algorithms used in point-of-sale for risk selection and decisions about terms and conditions.2
  • Data Monetization: Using telematics, US-based Allstate created Arity, which turns mobility and driver data into meaningful behavioral insights. The company can generate enhanced risk insights and sell revenue streams to other insurers through Telematics-as-a-Service (TaaS).3
  • Trusted/Shared Network: Swiss Re Corporate Solutions has implemented a property exposure module within its newly launched Risk Data & Service platform that enables insureds to view a digital twin of their facilities to see exactly where their vulnerabilities lie.4

Best Practices When Leveraging Data and AI

Strategic use of data yields significant value and competitive advantage to first movers; incumbents cannot afford to be left behind.

  • The pace of change is rapid, so it is essential for organizations to move at speed. Quickly responding to change requires an open and distributed (cloud) data and technology architecture. This also allows you to readily participate in collaborative data and value networks - essential in the new connected world - and quickly deploy new use cases.
  • Identify new data sources that can create value internally or for customers. Establish partnerships with providers. Data is more valuable when augmented with external sources requiring new partnerships.
  • Achieving maturity with your data and AI capability is a transformational effort and requires leadership commitment.
  • Define a vision to identify strategic use cases and assess value creation opportunities that correlate with strong financial and customer performance across the following areas:
    • Experience
    • Sales and Marketing
    • Products
    • Risk Analysis, Pricing and Underwriting
    • Data Monetization
  • Decide whether to buy, build or partner for the infrastructure and tools you need to capture, manage and analyze data effectively. Speed, investment, talent, execution excellence and culture are some of the key decision factors. Sometimes a carve-out can provide the focus required.

The insurance industry is facing an inflection point, marked by the trifecta of changing customer preferences, a dynamic market landscape and transformative technologies. As customer expectations evolve towards greater convenience, customization and digital engagement, insurers must adapt by diversifying their product offerings and reimagining traditional business models. At the same time, the emergence of disruptive technologies such as big data analytics, telematics and artificial intelligence is revolutionizing core insurance processes, enabling insurers to streamline operations, enhance risk management and deliver more personalized services. Navigating these dynamic shifts requires a proactive approach from insurers, leveraging data-driven insights, strategic partnerships and agile methodologies to stay ahead in this rapidly evolving landscape. By embracing these trends, insurers can not only meet the evolving needs of their customers but also position themselves as leaders in an increasingly competitive and digitally driven market landscape.

Footnotes

1. "Insurer of the Future: Are Asian Insurers Keeping Up with AI Advances?" McKinsey & Company, www.mckinsey.com/industries/financial-services/our-insights/insurer-of-the-future-are-asian-insurers-keeping-up-with-ai-advances#.

2. "Travelers 2021 Annual Report." Travelers Companies, Inc., s26.q4cdn.com/410417801/files/doc_financials/2021/ar/Travelers-2021-Annual-Report.pdf.

3. "Arity." Arity, www.arity.com.

4. "How Technology Will Play a Crucial Role in Natural Catastrophe Property Risk Prevention." Risk & Insurance, www.riskandinsurance.com/predict-prevent-how-technology-will-play-a-crucial-role-in-natural-catastrophe-property-risk-prevention/.

Originally published 28 May 2024

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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