The insurance industry is slow to accept changes, but recently, it was ready to turn around. Like other industries, the insurance industry cannot escape digital transformation. However, some companies with foresight are already embracing digital transformation and implementing machine learning and artificial intelligence (AI).
Their acceptance of new technology allows them to leverage AI capabilities of machine learning, predictive analysis, and data modeling. Right now, AI is bracing to be one of the insurance industry’s biggest game-changer. Many insurance companies now benefit from AI’s various applications, such as fraud detection, personalized offerings, and risk management. With the various applications possible with AI, service offerings and personalized pricing will be the sector’s major features.
Effects of AI on the insurance industry
Artificial intelligence uses the concept that a computer can emulate a human’s capacity to learn, think, and behave. From a business point of view, people can use AI to perform business processes accurately and quickly. As a result, AI can automate labor-intensive tasks to save time and decrease production costs. In addition, programming can help computers understand customers better, which insurance companies need to predict customer behavior and optimize product offerings and prices to meet customers’ needs.
The insurance industry’s increasing implementation of AI started after COVID-19’s onset. Because of the global panic, the sector experienced an escalation in business interactions, medical emergencies, call volumes and death claims.
Insurance pricing and AI
Insurance premium pricing is quite complex as there are several variables to consider, including age, type of coverage, and amount of coverage the customer needs: personal information, zip code, insurance history, and risk. Many insurance companies still use the traditional method of computing insurance premiums, particularly a cost-plus system. The cost-based pricing is often used in computing property and casualty (P&C) insurance like home and vehicle insurance sectors. However, many companies also realize that they need to automate their pricing process to serve many clients, increase customer satisfaction, and be ready for the future. Using AI-powered pricing software will provide the features insurance companies need.
Computing insurance premiums requires plenty of data about the customer, which is already available from IoT-connected devices. The updated data will help AI assess the risk profile of customers. For example, an applicant for auto insurance pays less because they do not often drive, whereas riskier customers need to pay more. AI can obtain data from health data, biometric testing, claims data, and lab testing and combine the data with other data, such as customer files.
With AI helping in the pricing, the insurance company can offer cheaper policies, and the process becomes simpler and faster. In addition, this feature allows companies to serve the more tech-savvy customers, the Gen Z individuals.
Insurance companies should be embracing new technology now because there is no escaping the trend. However, if they want to increase their profitability, serve more customers, and remain competitive. In that case, machine learning and AI are ways to quickly complete risk assessments and offer more pricing options (including discounts) ahead of aggressive competition.