INCHARA S

APPLICATION OF ARTIFICIAL INTELLIGENCE IN INSURANCE

SECTOR

REVIEW OF LITERATURE
1. JOURNAL OF THE GUJARAT RESEARCH SOCIETY

The aim of this research is to understand better the Use-cases of Artificial Intelligence (AI) in the
Insurance Sector. Particularly, we want to explore the scope and market penetration of AI in insurance
services to overcome ongoing problems for better customer satisfaction in the hospitality industry.
Based on the concepts of AI, a conceptual model was developed. The conceptual model intends to
measure the relationship between AI & its use cases in the Insurance industry. Empirical quantitative
research was used to verify the model, with a sample of international companies and InsureTechs
Implementing such models. This research concludes some practical insights that are believed to be very
useful for Insurance companies when responding to dissatisfied customers and other operational
troubles.

2. FROM MYSTERY TO MASTERY: UNLOCKING THE BUSINESS VALUE OF

ARTIFICIAL INTELLIGENCE IN THE INSURANCE INDUSTRY
Deterioration of traditional profit pools, changing competitor landscapes, technological innovations and
changing customer expectations are calling for a new perspective on insurance. However, traditional
insurance players are often slow to react to the new demands and possibilities of the digital era. This
opens up the playing field to InsurTech start-ups and Tech incumbents who capitalize on new business
models and improved customer experiences. The new players promise and deliver faster claim
payments, greater price transparency and on-demand policies, while decreasing the cost and the
resources required (Figure 1). Global VC funding of these new businesses totalled USD 1.7B across
173 deals in 2016 as compared to USD 0.14B among 28 deals in 2011 – clearly increasing the
seriousness of competition for traditional insurance players.
AI IN INSURANCE

Insurance AI means effectively implementing the advanced technology once the insurers figure
out where it fits into the digital insurance continuum. However, AI can be leveraged for
insurance advice, underwriting claims processing, fraud prevention, risk management, and
direct marketing.

Customer behaviour and advances in technology have opened the door for AI in the insurance
market to create value, reduce costs, increase efficiency and achieve higher customer
satisfaction and trust.

Key Benefits of AI in the Insurance Industry

The benefits of implementing AI in insurance seem clear to stakeholders in this ecosystem.

Indeed, 84% of surveyed French investors believe AI will revolutionize the insurance sector.
Moreover, 66% of insurers feel AI can help improve workforce productivity.

 By implementing AI into their processes, insurers can save time, reduce costs, improve
customer experience and increase profitability.
 AI can also transform typically tedious and time-consuming processes i.e.,
underwriting, claims management, fraud detection, customer service.
 With AI insurers can also reduce human errors. These errors can be common due to
factors like changing the regulation of information to analyse for fraud prevention.
Conversational AI in Different Types of Insurance Policies
Conversational AI abilities allow it to understand the context of an entire conversation and
adapt the response accordingly. The highly intelligent and personalized approach increases the
customer’s confidence in the overall service, while improving the customer experience in the
insurance industry.

Insurers can rely on AI chatbots to deploy on insurance processes by taking on the always-on
customer service channel. Conversational AI enabled virtual agents can familiarize customers
with various insurance policies and rank them based on customer needs.

Intelligent bots can ask the right questions and understand the customer’s needs and
expectations. With Natural Language Understanding (NLP), it is easy to figure out the
customer’s real intent based on their responses. Bots can also recommend the best policies
based on the customer’s profile, risk assessment, and the type of cover needed.

Insurance AI solutions can be applicable across different type of insurance policies:

1. AI in the Health Insurance Industry

Artificial intelligence is poised to become a transformational force in healthcare. AI health

insurance offers some advantages over traditional analytics and clinical decision-making
techniques.

AI in health insurance increases the ability for healthcare professionals to better understand the
day-to-day patterns and needs of the people they care for, and with that understanding, they
can provide better feedback, guidance, and support for staying healthy.
Many companies deploy AI in healthcare insurance.

Alay care is a perfect case to the point for AI insurance Canada.

It offers a cloud-based software platform for home healthcare practitioners. The platform
features clinical documentation, back-office functionality, remote patient monitoring, &
telehealth. It also helps in analysing wearable devices to fetch patient data for processing
through machine learning technology by giving real-time insights for the care professionals.

Key AI Use Cases in Health Insurance

 Faster Disease Detection: AI in healthcare insurance detects issues and notify care
teams quickly, enabling providers to discuss options, provide faster treatment decisions
and ultimately save lives.
 More Accuracy in Diagnosis: AI and ML in health insurance help in assisting
pathologists in making more accurate diagnoses and developing methods of
individualized treatment.
 AI is a Great Symptom Checker: Deploying a healthcare chatbot will listen to the
patient’s symptoms and health concerns, then guide the patient to the correct care based
on its diagnosis.

2. AI for Automobile Industry

The automotive industry is at the cusp of a phenomenal transformation. Automakers worldwide
have started incorporating advanced technologies in their products and operations to ensure
that they stay a step ahead of competitors in the market.
AI for motor insurance companies witnessed working its magic in an autonomous car using
machine learning and also automating motor insurance underwriting with AI.
Here is an example of the largest general insurance company in Australia, IAG deploys AI to
assess vehicle damage and reduce claim times.

The company uses an AI-based system to assess damage from motor vehicle accidents and
speed up customers’ insurance claims. The support team can predict whether a car is a total
loss following an accident, and by mitigating the need to tow the vehicle to a garage for
assessment, can reduce claims processing times from weeks to days.

Key Use Cases for AI Auto Insurance

 Predictive Analytics for Manufacturing: The use of AI in vehicle manufacturing helps

automakers reduce manufacturing costs and provides a safer and more efficient factory
floor. It also helps in predicting malfunctions in automotive parts
 Vehicle Maintenance Recommendations: AI and ML algorithms for motor insurance
companies help in providing recommendations to drivers about vehicle maintenance.
 Driver Behaviour Analytics: AI auto insurance based automotive applications offer a
plethora of valuable in-car analytics. Cameras and IR sensors can detect the driver’s
behaviour accurately and provide warning signals to avoid accidents.

3. AI for Property Insurance Sector

AI-based technology is being applied to many different industries now, including the insurance
industry, with residential and commercial property insurance. It has the potential to transform
how property insurance works.
Artificial Intelligence helps to improve the claims process, making it faster and more accurate
than ever before. Its ability to automate many tasks is making everything more efficient, which
translates to better customer service and outcomes.

Key Use Cases: AI for Property Insurance Companies

 Risk Analysis & Underwriting: Using AI to analyze data can result in a more accurate
assessment of potential perils, a determination of the best policy and coverage for your
needs, and ways to reduce your risk of future claims.
 Fraud Detection: AI chatbots help to automate many processes that are often subject to
fraud and take action without needing human support. It can also flag new policies, helping
to identify people who are more likely to commit insurance fraud.
 Automated Claims Processing: AI can help customers report a claim, record damage or
loss, verify policy and limits, communicate with customers, and alert customers and
insurers about the status of claims.

4. AI for Life Insurance Claims

The technology world is transforming rapidly, which is why the insurance sector is shifting
with it, driven by customer expectations. To be competitive, insurance companies require more
customer insights and the capability to turn these insights into action.

AI in life insurance offers the chance to increase revenue, improve efficiency, and reduce risk.
AI has the ability to improve mortality, optimize decision-making to help build long lasting
profitable customer relationships.

Utilizing AI in life insurance underwriting can be determined along with individualized pricing,
disease severity prediction, submission prioritization, and rapid product development.

Life Insurance AI Help Insurers in Following Ways

 Marketing & Sales: A life insurance AI solution can help with customer segmentation,
opportunity targeting, qualification of prospects, product recommendation, and
personalization.
 Real time Engagement: Non-renewal costs insurers money, and AI can predict the
likelihood of churn. Such predictions can be used to determine the appropriate renewal
price change (RPC).
 Mortality Reserving: AI for life insurance claims can help you determine individual
mortality reserving, as well as individual persistence estimating and overall profitability
and cash flow.
5. AI for Customer Communications
Insurers consider the changing customer needs and expectations, especially as they no longer
tolerate lengthy insurance applications or a convoluted claims process. Integrating AI and
automation into the customer communication model for insurance companies is critical.

With conversational AI enabling growth and disruption, insurers can address the demand for
dynamic products and capture a new customer base comprising younger demographics.

AI in customer communications in the insurance industry has done a lot to improve customer
experiences and operational efficiency.

Here is how AI in customer communications deliver a transformative

experience:

 Increased Efficiency of Claim Process: AI helps to reshape the claims process for
new and existing policy holders. Voice AI can help handle high call volumes by
reducing the load on human agents. McKinsey predicts claims processing will remain
the primary function of all insurers in 2030 & AI technology will reduce the
overhead associated with claims by 70 to 90%.
 Policy Management: Automating the common customer requests like getting help
with documents with AI enabled chatbot will deliver a better customer experience.
 Generating Quotes: Usually consumers have questions after receiving a quote. Voice
AI can help consumers with these requests; thus, insurers can save agents time until a
complex query arises.

6. AI for Commercial Insurance

Artificial Intelligence has the ability that allows programmers to create software that can
identify patterns, extrapolate predictions and manage information more quickly and efficiently.

AI can easily spot patterns and flag risks in commercial insurance. Both new and established
insurance companies are embracing artificial intelligence for these abilities.
Here is how AI in Commercial Insurance is Vital

 Better Data-Driven Decision-Making: AI in the commercial insurance

industry, makes it easier to manage the massive quantities of data generated
by both insurers and their customers.
 Faster Process: The AI algorithms control the amount of time committed to
underwriting tasks decreases significantly. All the data is easily processed,
and it takes less time than the traditional processes.
 Risk Evaluation: Applying AI to underwriting questions can be done by
providing a more accurate view of underlying risk by accounting for factors
that may not otherwise reach an underwriter’s attention.
 INSURANCE PRICING

Any company aims to set prices to maximize its profits. This is also referred to as optimal
pricing. It is not different in the insurance sector. Ideal pricing (or premium in insurance
terminology) must cover:

 Variable costs

 Operating expenses

 Profits

Setting an optimal price depends on understanding costs, price elasticities, consumer

preferences, and the strategic actions of competitors.

WHY IS OPTIMAL INSURANCE PRICING IMPORTANT?

Setting an optimal premium price provides a competitive advantage for the firms.

As in any industry, the price is subject to the law of demand and supply. Since getting the best
price is the top priority for insurance customers, even a small percentage change in premium
prices causes many customers to switch providers. Therefore, optimal pricing in the insurance
sector enables profit maximization by allowing operators to gain market share in segments of
their choice (e.g., more profitable segments).
TOP 6 WAYS OF ACHIEVING OPTIMAL INSURANCE PRICING

1. Minimizing the cost of risk bearing service (more effective underwriting)

The most important variable cost for insurance companies is the determination of the cost of
risk.

Each insurance policy can be described as an exchange of risk for money. Thus, each realized
claim represents the variable cost of the insurance sector, which is difficult to determine
compared to the variable costs of other sectors. For example, in the case of manufacturers, the
variable costs, such as raw materials, are fairly certain, which makes it easier to minimize it.
In the insurance sector, on the other hand, variable costs are a probabilistic distribution.
Therefore, it is challenging to minimize it.

In order to evaluate the risk, insurers check some statistical data about the person or company
applying for the insurance (subject variables) or about the object to be insured (object
variables). For example, in car insurance, insurers evaluate variables such as the segment of
the car, the age of the policyholder, the mileage and previous penalties of the policyholder, etc.
The idea is that there is a relationship between these variables and the expected damage that
would cost the insurance company.

Before AI/ML algorithms, primitive risk assessment models like linear regression and
generalized linear model (GLM) were used for interpreting statistics. Nowadays, AI based
underwriting assesses risk with more sophisticated analytics. Also, data was scarce before the
growth of IoT devices. Therefore, insurers can assess risk more precisely today. Uncertainty of
variable cost diminishes for the companies that adopt new technologies effectively. Such a
progress makes it easy to determine optimal prices for insurance companies and provides a
competitive advantage.
2. Detecting Fraudulent Claims

According to the Coalition Against Insurance Fraud, fraudulent claims cost the U.S. $80 billion
per year.

Fraud is a factor that increases the costs for insurance companies and thus increases the
premium prices. Therefore, detecting fraudulent claims more effectively can be used either to
increase profits or market share. Fraud detection may be enhanced by using AI/ML models:
  Using behavioural analytics increases the probability of foreseeing some fraudulent
claims before they occur. For instance, analysing customers’ habits, companies can
determine whether their behaviour is consistent or not. If there is any suspicion,
companies can investigate further.
 Automation of claim processing with chatbots that direct policyholders to capture
streaming video of damage can reduce fraudulent claims by providing evidence to
support the claimant’s description

Using NLP and computer vision technologies to detect fraud more efficiently. For example,
fraudulent documents can be identified using computer vision techniques

3. Optimizing customer service

Insurance chatbots and omnichannel engagement with clients can significantly reduce
customer service-related expenses and increase customer satisfaction due to:

 Optimized customer care response times.

 Engaging with customers via variety of platforms such as

o WhatsApp
o Mobile App

o Website

 Task automation.
 Allocating workforce to tasks that yield greater value.

Also, predictive analytics, can assist insurance companies to prioritize their customers who
need immediate claims processing, which in turn lowers operating expenses.

4. Reducing rent expenses

Millennials and urbanites generally demand less physical interaction, and this process
has accelerated following the Covid 19 pandemic. Thanks to digital technologies and
applications insurance companies and brokers can benefit from this recent trend and reduce the
number of branches.
5. Reducing other operating expenses

One of the cost drivers in commercial insurance is inspections. Plants and equipment need to
be inspected for validating their current status and identifying relevant risks. Companies can
outsource these inspections, lowering their costs.

6. Determine a realistic profit margin

Jeff Bezos famously said “Your margin is my opportunity”. This is definitely relevant in the
insurance industry as identified in surveys. Venture funded companies are embracing that
paradigm to set aggressive prices and gain market share. Their goal would be to dominate the
market and set more profitable prices in the future when they have achieved substantial scale.

Therefore, insurers need to take multiple factors in the account while pricing:

 Competitors’ pricing, including some irrational moves by competitors.

 The fact that market is mature.

 High price elasticity.

It is important to note that while price is the greatest priority, it is not the only important factor
that pulls the customers. Claims processing speed and effectiveness, customer service,
consumer friendly digital interfaces etc. are all important factors for consumers picking an
insurer. Therefore, success in these areas may help charge a higher profit margin for your
products.