How AI and IoT are Affecting the Insurance Industry
Thanks to the integration of AI and IoT into the insurance industry, people could soon be seeing better service and lower rates.
Together with the latest internet of things (IoT) devices, artificial intelligence (AI) has already begun to change the universe of insurance not only by making it more affordable, but by making accessibility and underwriting much better. There are some that even believe that someday, insurance itself might become a thing of the past. (Read also: How Explainable AI Changes the Game in Commercial Insurance.)
Machine learning paired with complex AI algorithms hold the ability to completely transform practically any industry. To say the least, the insurance industry is not an exception. Since its inception, the insurance industry has been powered by mathematics; originally only an underwriter could calculate reliable risk rates and offer acceptable payouts that would not shut down the insurance company.
With the advancement of AI, it is possible to employ it to repeatable operations that are based on logic and mathematics at a higher reliability rate than that done by humans. The true question is how the insurance industry will take advantage of AI, and how it will affect the future of the insurance industry.
The Present Profile
First things first – it is important to understand how much the advancements offered by AI and IoT have already been applied to the insurance industry.
• Big data and risk assessment – The majority of leading insurance companies are pairing their data analytics algorithms with some of the latest AI technology in order to improve the accuracy of risk calculations. The reason for this is that insurance companies need to have enormous quantities of data in order to improve their comprehension of consumer risk. (For more on big data in insurance, see How Big Data Is Helping the Insurance Industry.)
• Policies vs. usage – Insurance companies that have invested in modern technology often use usage-based calculations in order to determine the variance of the rate of an activity that is to be insured (e.g., driving your vehicle). With the use of connectivity and even high-tech sensors, it is becoming easier for insurance companies to fully comprehend insured activities.
New Plans, Products and Policies
In a quite short time, the insurance industry will most definitely develop new plans, products and policies. Due to the fact that AI-powered algorithms will be able to gain access to more data points and their variables, companies will soon have the ability to create a large array of customized policies in almost real time. Today, the digital experience of most enrollees with their insurer is so unsatisfying that just 15 percent of them are happy about it.
The IoT allows insurers to increase their digital agility and make their products become more dynamic. Instead of spending countless hours browsing and shopping for the right policy among the existing ones, consumers will have a custom policy be presented to them based on their lifestyle, budget and habits. These new, highly customizable products could represent the solution through which different insurance companies will offer differentials to their customers and be identified in a different way than their competition.
The strength that AI processing will gain directly depends on the size and the quality of data that is available to it. Simply put, the more information AI has about its customers, the better rate it is able to offer; it will not be limited to giving you the best kind of coverage, but it will also be able to give you a better price. By connecting with sensors and IoT devices, policies may change in real time by learning more about an enrollee's behavior and risk profile. Some apps already do that, such as Progressive's Snapshot or Allstate's Drivewise, which are able to account for hard braking or accelerating, and even detects the time a user spends on the phone while driving.
By 2025, experts forecast that there will be approximately 75 billion connected devices. The data that the connected devices generate is expected to allow insurance to adjust their rates in near real time. To exemplify how this could work, imagine that your car is connected and everything your car does is recorded. If you happen to go above the speed limit, this could perhaps increase your insurance rate by 1%, or it could even be lowered by 1% if you practice safe driving and actually stop at all stop signs. Digital changes will be recorded and will tend to be reflected in rates that companies offer their clients. Ultimately, this could result in lower rates for lower risk drivers, and probably, a better bottom line for insurance companies. (To learn more about tech in the insurance industry, see 6 InsureTech Trends to Know.)
The Customer Experience
Chatbots are a vivid reality in a number of sites. As connectivity, AI and technology advances, it is likely that we are not far from customers asking chatbots open-ended inquiries and getting specific and top-level responses. Some experts say that we are not far from being unable to tell the difference from human and AI interactions.
Insurance companies will probably offer a personal assistant app that helps you manage personal activities and inform you if you are improving your rate or not. Hopefully, these AI-powered assistants will guide you to saving more and avoiding the hassle of claims and penalties. In the event of misfortune, it is likely the personal assistant app will be able to guide customers through the steps of dealing with an accident or another kind of undesired incident.
Chatbots and virtual assistants may help users during personal activities, inform them if their ratings are increasing or if their behaviors are increasing their risk class. They may also help companies by avoiding false claims and, therefore, reduce all premiums.
Automation to Post-AI Evolution
It would be foolish to ignore the effects that AI will definitely have on the insurance industry. They will be quite similar to automation in the automotive industry. Many parts of insurance will no longer be done by humans. As this transition unfolds with AI and connectivity leading to autonomous cars sometime in the 2020s, the insurance industry and many others will be forced to evolve and adapt to new realities such as fewer accidents and even new ways of determining fault.
This transition needs to be aligned with automakers and insurance companies to make it work for everybody. It is a fact that auto insurance will shrink incredibly, but other kinds of insurance will be on the rise as well.
Since we are at the beginning of a profound transformation within the insurance industry, it’s hard to predict how much the advent of AI and IoT will change the insurance world. Some aspects of our lives are going to change so radically that we might not even need certain kinds of insurance in a more distant future.