How insurtechs can scale the business with AI?

Data transformation is rapidly reshaping the insurance sector. Emerging capabilities like artificial intelligence, telematics, automation, and machine learning have transformed nearly every aspect of the business, with insurtech companies at the forefront of this rapid technological progression. In this post, we’ll look at how insurtechs can implement AI and scale its business, benefits of artificial intelligence in the industry as a whole. Read on for more insight.

Traditional players are also leveraging artificial intelligence solutions to drive innovation in fraud detection, underwriting claims processing, hyper-personalization, and value-based service delivery. With both sectors promising the same level of customer experience and service delivery, insurtech companies have to scale if they are to stay in business.

However, unlike traditional players, who have to revolutionize their entire insurance value chain to adopt these new technologies, insurtech companies are founded on the principle of data-driven service delivery, which puts them at a significant advantage. Investors seem to be taking note because, according to Gallagher Re’s inaugural Global InsurTech Report, global investments in insurtech in 2021 totaled $15.8 billion, which is double the amount of capital inflow recorded in 2019 and 2020 combined [1].

But let’s start with the beginning.

What are insurtechs?

Insurtech refers to the technological innovations employed by the insurance industry to improve service delivery and customer service efficiency. It requires adopting and implementing cutting-edge technology like artificial intelligence, big data, the internet of things (IoT), and machine learning, among others.

The insurance industry’s unique capability to take advantage of innovative and disruptive technology has captured the interest of venture capitalists who are injecting billions of dollars into the sector. According to a KPMG analysis report, there were 13 insurtech agreements totaling over $100 billion in 2018 alone [2]. These collaborations are expected to intensify as the insurance industry continues to collaborate with the tech space.

Up until recently, the use of modern technologies in the insurance sector was limited to customer support and insurance claims. But, as consumer demands for more personalized and accessible services increase, traditional players have also had to up their game, thus giving rise to numerous partnerships and collaborations between them and insurtech startups.

How are traditional players and insurtech startups collaborating?

Insurtech startups have big ideas and technology that could revolutionize the insurance sector. Unfortunately, they lack a large-enough customer base to scale. Conversely, traditional players have a wide customer base, which demands faster, more efficient, and personalized services, which they cannot provide without leveraging technological solutions. By working together, these two competitors can bring innovative and financially inclusive insurance products, which are necessary to stay on par with the digital wave.

Here are a few ways in which traditional players can incorporate and collaborate with insurtech:

Implementing artificial intelligence

Insurance companies lose up to $80 billion a year to fraudulent claims [3]. Their biggest challenge is processing legitimate claims faster while rejecting fraudulent claims. Most traditional players use Robotic Process Automation (RPA) [4] to achieve this.

Unfortunately, RPA comes with a few drawbacks since you have to train the system to execute a process. While this might work for repetitive tasks, unique cases must be handled by human employees, which can significantly strain a company in terms of manpower and time efficiency.

Insurtechs bring artificial intelligence to the table. This revolutionary technology can find erroneous information provided by insureds and detect discrepancies in fraudulent claims. Additionally, since AI processes are data-centric, the system can create its own logic and take action based on the data provided. AI is also easier to implement than RPA since it can process unstructured data.

Read more about The influence of AI on insurance pricing

Offering bite-sized insurance

Most millennials are uninsured. 55% of the total uninsured millennium population say that they simply can’t afford it [5]. Insurtech companies have discovered that a wide majority of this demographic is interested in bite-sized insurance. By successfully selling bite-sized insurance for specific requirements like travel and vector-borne diseases, insurtech companies are selling insurance to a demographic that was otherwise unreachable by traditional players.

Bite-sized insurance policies are easy to buy and require much less paperwork compared to traditional insurance premiums, making them even more attractive to younger prospective customers. By partnering with insurtech, traditional players can also cash in on this goldmine. Their combined resources can also lead to a wider product offering, with insurance for all sorts of requirements.

AI trends in insurtech that can boost growth

Artificial intelligence is not a new concept in insurance. Traditional players are already using AI in marketing automation, customer support through chatbots, and retention management systems. However, AI’s greatest value to insurance lies in automating core processes such as profiling and underwriting.

Here are a few ways in which insurtechs implement AI to automate key processes and ultimately improve their business model:

It might be interesting for you – Why insurers should focus on hyper-personalized claims

Fraud detection

Nearly 18% of all insurance claims made in 2020 had some form of fraud [6]. By implementing AI and machine learning algorithms, insurtech companies can detect suspicious activity in insurance claims in real-time. This is a much-needed cost-saving solution for insurtech companies who need the extra capital to scale and gain a competitive advantage against legacy players.

Risk assessment

Historically, insurance companies have relied on information provided by applicants to access risk. The biggest problem with this model of risk assessment is that applicants may be dishonest or make mistakes. The result is inaccurate risk assessment, which could result in high-risk applicants getting lower premiums and vice versa.

Insurtech employs various technologies, including AI, machine learning, and natural language processing, to pore through abstract sources of information such as SEC filings, yelp reviews, and social media posts. By pulling pertinent information from numerous sources, insurance companies can get better assessments of an applicant’s potential risk.

Insurance customers are continuously looking for more affordable insurance coverage. Therefore, any insurance company looking to stay competitive must offer affordable premiums. By collaborating with tech-focused insurtech companies, traditional players can get more accurate risk assessments, which, in turn, can help them make more appropriate and affordable insurance premiums.

Automatic underwriting

Traditionally, claims processing was a painstaking process, requiring a lot of manpower and stacks of paperwork. Through automation, this process has become more efficient, with industry experts estimating that the number of employees required to perform insurance underwriting will reduce by up to 90% by 2030[7].

Let’s take the auto insurance sector, for example. Traditionally, the company had to send an insurance agent who would visit the customer, take photographs of the damaged vehicle, and estimate the damages. But now, insurtechs implement AI-based algorithms like image-recognition software to analyze pictures taken by the customer, thus automating the underwriting process altogether.

Customer service

Customers prefer working with insurance companies that offer consistently positive experiences. According to a report by Emplifi, 32% of customers stopped working with a business after a single negative experience [8].

Insurtech company websites feature AI tools like chatbots that can guide a customer through numerous queries in real-time and without any human intervention. Say, for example, a customer needs to access their account. In this case, a chatbot could assist them right from the insurer’s website. Proper implementation of these features could potentially resolve customer issues instantly. Although human intervention is still required for complex concerns, leveraging AI chatbots can make the process a lot easier, not to mention the cost-saving benefits of hiring fewer employees.

Benefits of AI implementation in the insurance sector

The insurance sector is barred with numerous risks, which mostly revolve around assessing different possibilities when determining premiums pricing. By leveraging AI, insurance companies can overcome most of these challenges and rip other benefits as well.

Here are some notable benefits of implementing AI in the insurance sector:

Applications processing and insurance underwriting

Application processing typically requires extracting and analyzing information from a large volume of documents. While doing it manually still gets the job done, it is prone to errors and takes too long. By leveraging AI technologies like document capture technologies, insurance companies can extract relevant data automatically from applicants’ documents, thus significantly accelerating the application process with fewer errors. Faster application processing also leads to increased customer satisfaction.

Claims processing

Claims processing is one of the most sensitive areas in the insurance business. Even a slight mistake could result in significant losses, especially where there is fraud. Claims processing typically involves multiple tasks, including review, investigation, and adjustment. Depending on the validity of the claim, an insurance company can either deny or move on remittance.

Like application processing, claims processing involves a large volume of documents, which, if reviewed manually, could result in errors. Additionally, the process is barred by continuously changing regulations and varying data formats, which cannot be processed by RPA technologies. By leveraging AI capabilities, insurance companies can eliminate human error and keep up with insurance regulations.

Appeals processing

By 2025, 50% of insurance claims will be automated thanks to AI and machine learning technologies [9]. After claims are processed, denied claims may result in appeals, which can be automated through AI.

Other emerging AI-powered technologies like hyper-automation can automate end-to-end processes such as claims processing, redaction, and appeals processing [10].

How will insurtechs accelerate the next wave of growth in the insurance industry?

Drive profitability

Raising capital and acquiring a customer is just one part of the huddle. After all this, insurtech companies still have to drive a path to profitability. Most insurtech startups get stuck at this stage. However, insurtech startups with their own differentiated technologies and processes manage to tap into new revenue-generating opportunities.

Despite the numerous venture capital investments hitting the insurtech sector, investors are still less-inclined to make pure growth bets. Insurtech companies that demonstrate solid economics and a clearly laid out path to profitability have a significantly higher chance of getting investment capital.

Refresh the strategy

Based on what we can see, most insurtechs will undoubtedly scale in their core markets. When they reach their peak, most companies will naturally set sights on new markets that can spur horizontal growth opportunities.

At this point, these companies will need a full strategy refresh, which will require a substantial amount of analytical rigor and external perceptiveness. The primary goal here will be to create a road map for an ambitious growth trajectory and identify strategic M&A opportunities and enablers to achieve their growth targets.

Insurtechs with a clearly defined playing field where they can win and double down on specific customer segments will have the highest probability of success. With a clearly laid out strategy, insurtechs can introduce their model to new markets and geographies and drive growth tremendously.

Final thoughts

Insurtech companies are giving traditional players a run for their money. As the insurance industry shifts to personalized service delivery and automation, tech-driven insurance companies that leverage AI capabilities have a higher probability of scaling upwards. The changing market dynamics have fueled various partnerships between insurtech and traditional players who want to stay on top of their game.

To keep a competitive advantage, insurtech companies should build software solutions that can easily integrate with external systems. This way, they don’t have to rely solely on selling insurance premiums as they can also transition to B2B companies.

Do you want to know how insurtechs can implement AI and scale its business? Check our AI consulting services and drop us a line!

References

[1] Inurancebusinessmag.com. Gallagher, Everything You Need to Know. URL: https://www.insurancebusinessmag.com/uk/companies/gallagher/121259/. Accessed July 25, 2022
[2] Home.kpmg. Knowing Your Risks to Innovate. URL: https://home.kpmg/xx/en/home/insights/2019/02/knowing-your-risks-to-innovate.html. Accessed July 25, 2022
[3] Iii.org. Background on Insurance Fraud. URL: https://www.iii.org/article/background-on-insurance-fraud. Accessed July 25, 2022
[4] Gartner.com. Robotic Process Automation. URL: https://www.gartner.com/en/information-technology/glossary/robotic-process-automation-rpa. Accessed July 25, 2022
[5] Fiercehealthcare.com. Millenials Forgo Health Insurance Because They’re Uninformed. URL: https://www.fiercehealthcare.com/payer/millennials-forgo-health-insurance-because-they-re-uninformed. Accessed July 25, 2022
[6] Legaljobs.io. Insurance Fraud Statistics. URL: https://bit.ly/3PLrnvC.Accessed July 25, 2022
[7] Mckinsey.com. Insurance 2030: The Impact Of AI on the Future of Insurance, URL: https://www.mckinsey.com/industries/financial-services/our-insights/insurance-2030-the-impact-of-ai-on-the-future-of-insurance. Accessed July 25, 2022
[8] Emplifi.io. Emplifi Guide: CXNewEraExpectations, 2021. URL: https://go.emplifi.io/rs/284-ENW-442/images/Emplifi-Guide-CXNewEraExpectations-2021.pdf. Accessed July 25, 2022
[9] Mckinsey.com. The Impact of AI on the Future of Insurance. URL: https://mck.co/2HHn4Cs. Accessed July 26, 2022
[10]Business-agility.com. Hyperautomation Insurance on the Edge of Tomorrow. URL: https://www.business-agility.com/hyperautomation-insurance-on-the-edge-of-tomorrow-blog/. Accessed July 26, 202