Insurers benefit from AI and IoT, and so do their customers

Over the last two decades, technology has dramatically changed the way people interact with products and services. This trend towards digital systems that are available on demand in real-time is now also gaining importance in the insurance industry. Because of this, insurance companies must begin to change the way that they interact with their customers.

Insurtechs recognized this need early on and now offer digital services along the entire value chain. Established insurers are also following suit, investing millions in online distribution channels or apps to facilitate interaction with their customers. Technologies, such as telematics, are also changing tariffs and rewarding certain customer behaviour, as is the case in car insurance rewarding customers with a prudent driving style with discounts.

Insurance companies have yet to perfect change

However, a coherent overall concept is still lacking. A study by the international strategy consultancy, Bain & Company, has concluded that 60% of insurance companies do not have a realistic plan to master the digital change. Rather, many of the welcome approaches fall under the category of blind activism. Customer needs are often insufficiently understood. This is exactly why it is essential to do justice to the fundamental changes in customer behavior in this digital age.

Data is the most valuable currency for insurance companies. More than nearly any other industry, the insurance industry has an immense interest in data. The more precise insurers are when getting to know customers, the more they can refine risk profiles which helps them to adjust prices more accurately.

Utilizing RPA for business digitization

Until incurers become more precise with customer data, software robots will increasingly automate simple, structured processes. Robotic process automation (RPA) is the name of this technology, which emerged from the classic manufacturing industry. However, unlike factories, insurers use virtual robots to relieve people of simple copy-paste tasks or identical work steps. The robots imitate the user behavior of humans with software and are therefore not laboriously integrated into the existing IT infrastructure. This is quickly implemented and inexpensive.

However, the tasks are still limited to quite simple work processes such as billing, changes to address data or bank details, the transfer of data to databases and the processing of termination letters. The virtual workforce is therefore not in a position to react flexibly to deviations such as incomplete or incorrect data entry. In this respect, RPA is only an intermediate step on the way to the complete digitalization of business processes.

Insurance companies’ biggest issues

In order to accurately reach business digitization, insurance companies must have an infrastructure that enables customer data to be bundled across the entire contract term and all interfaces. This is what insurance companies are lacking at present:

  • The separation of business into health, life, accident and property insurance.
  • Different legal entities, mergers, acquisitions and collaborations with third parties have resulted in countless data silos and systems unable to exchange data with each other.
  • Outdated IT systems from the 1990s make integration even more difficult.

In the medium term, however, there is no way around AI in the insurance industry. No other industry relies so heavily on data; Data is practically the product itself. An insurance policy is essentially a contract based on a mathematical model and probabilities. Access to increased data will give trusted customers a much better insurance experience than before. They will benefit from uncomplicated claims processing and individually tailored product packages. AI in conjunction with IoT sensors could warn people of possible risks. For example, using data to alert customers when a thunderstorm – which could damage their property — is expected in their area, as a way to respond to customer needs and improve customer relations.

And the few black sheep? Insurance fraudsters will find it harder to take out a policy at all. And if it comes to damage, the customer service will examine these people much more closely. All this will enable insurances to become fairer again, because fraud is the biggest inefficiency in the system.

A new era for insurance companies

The insurance industry is facing a radical upheaval. In the future, machines will automate many processes. But the decisive criteria, categories and value judgements will still be determined by people.

What’s next? In the far future, insurers will no longer manage claims, but rather prevent risks. One very special aspect of insurance is that there is a perfect fit between what the customer wants and what the insurance company wants. They both want the customer, his family and his possessions to stay safe. Though for very different reasons. But insurance companies only make a profit if they don’t have to spend the premiums on claims.

So in the long term, insurers will go through a lot of struggle to prevent risks from happening. IoT is the means to do so. We are just seeing the very beginning of this trend. In 100 years, we still won’t live a completely riskless and predictable life. But thanks to data and smart systems, we will better be able to minimize those risks, and insurtechs will play a major role here.

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