The following is an opinion piece written by Carlos Somohano from WHISHWORKS who shares his insights into how big data can bring benefits to insurers, and to the sector as a whole. The views expressed within the article are not necessarily reflective of those of Insurance Business.
Big data has the power to revolutionise any industry and it is certainly changing the world of insurance; improving processes and offerings for providers and making it more accessible, accurate and affordable for consumers.
Brokers and insurers are having to quickly adapt to an evolving marketplace where technology and data proliferation are radically transforming back end operations and customer facing tasks. The idea of open data, where anyone can access, use and share certain information is increasingly embraced by governments, industry bodies and businesses, revolutionising the way markets operate. This data, combined and analysed by computer algorithms, can provide unique insights and opportunities for insurance companies.
There are three main areas where we see artificial intelligence having the greatest effect and benefit for insurers. These are in personalised insurance offers and policies, in underwriting and claims management, and in customer experience.
Although not a new concept, with big data and artificial intelligence the idea of behaviour-based insurance is going much further than tailoring a policy to the information provided by a customer.
Access to data from IoT-enabled devices (cars, fitness trackers, voice assistants etc) combined with other internal and external sources of information help insurance companies better understand their customers’ profiles, resulting in new product offerings and personalised policy pricing. The long-term benefit of applying artificial intelligence in analysing this data, is that the algorithms learn and evolve (with what is known as machine learning) in-line with the changing environmental factors and customer circumstances and behaviours. In time, these changes can be predicted, giving an unprecedented advantage to insurers in terms of growing their business with existing customers, by proactively offering products that are relevant and timely to their needs at any given moment.
Underwriting, claims management and fraud detection
According to the Association of British Insurers (ABI), in 2017 alone there were over half a million insurance frauds detected – from lying when applying for cover to making a dishonest claim.
Correct risk assessment and pricing is key to accurate underwriting and its impact should not be overlooked as it affects significantly a wide range of areas from commercial success, through to client satisfaction and regulatory compliance. Traditionally, the assessment is carried out based largely on information provided by the applicant and cross-referenced with other available sources often in a non-automated way. This process can be lengthy with high probability for erroneous outcomes. Artificial intelligence can help insurance agencies automate this process, providing at the same time the capability to access and correlate in just moments, more information from more sources (public databases, social media etc). This means that underwriters have a more accurate risk assessment, whereas applications are processed in a fraction of the time that is required today, leading to a greater customer service. Moreover, by applying machine learning, this process becomes ever more intelligent, reducing significantly not only the time-to-insight, but most importantly the potential for fraud and mis-pricing.
In a similar manner, artificial intelligence can significantly improve the claims management process in terms of speed and accuracy. And with fraudulent claims in the UK valued at £1.3 billion according to the ABI, this is a key area that insurers are focusing on. Currently, insurance companies have to process vast quantities of paper information on policyholders making a claim, and more often than not, this process is lengthy and to a great extend manual. Artificial intelligence and machine learning can be applied to automate and significantly speed up the entire lifecycle of a claim, from reporting a claim, to claim validation and customer communication.
More than that, technologies like facial recognition with sentiment analysis can prevent attempts for identity theft and false claims, whereas data analytics and visualisation can reveal areas of potential risk that traditional tools are not able to uncover.
By applying artificial intelligence in two notoriously lengthy processes in insurance, underwriting and claims management, the customer interaction can be highly automated and digitised, reducing time and effort for both parties. With access to information about individual behaviour and risk profiles, cycle times for completing the purchase of an auto, commercial, or life policy are reduced to minutes or even seconds. Similarly contract processing and payment verification time is minimised and streamlined, reducing customer acquisition costs for insurers and wait times for customers.
And as artificial intelligence enables insurers to reliably assess and issue policies quickly, concepts like on-demand or instant insurance, currently used primarily for travel and vehicles, can be expediated to cover a wider array of insurance products.
Another area where the use of artificial intelligence can improve customer experience, is pricing. Being able to generate richer and more accurate customer profiles, enables insurers to provide fairer, more personalised prices - for example, reduced premiums for safer drivers or policy-holders with healthier lifestyles.
There is no doubt that big data, artificial intelligence, machine learning and analytics are already changing the insurance industry. We are seeing positive signals from some insurers with increased ambition and willingness to venture out of the traditional ways of doing business. New entrants to the marketplace are embracing technology and launching their propositions based on deep consumer insights to offer products and services that fit into the lives of today’s (and tomorrow’s) tech-savvy customers.
More and more insurance companies ask us to show them how they could optimise their processes, reduce their risk and transform the way they operate. Many are already applying these technologies in parts of their business operation, but it is only a matter of time before they move on to a complete transformation.
Spokesperson, Carlos Somohano, Big Data Evangelist
Carlos has over 20 years of experience in providing consulting and advice to F500 clients in the areas of Big Data, Data Science, Business Intelligence and ERP. Carlos leads WHISHWORKS’ Big Data Pre-Sales and Evangelism team. He advises clients on how to leverage Big Data technologies and Data Science to obtain insight and business value from complex, large-scale data.