Like most sectors that have seen consumer adoption of digital technologies accelerate since the pandemic, the insurance industry is undergoing a major transformation, with new technologies and business models making it possible for insurers to offer highly flexible and personalized coverage. For an industry that has historically moved slow in adopting technology, 2023 promises to be a challenging year for insurers – but one that will make a tremendous impact on their relationship with customers.
In the next decade, the insurance industry as we know it will be unrecognizable. Cars, homes, and individuals will all be insured within highly flexible insurance programs as a matter of course. These programs will include sophisticated mechanisms to dynamically and automatically adjust coverage, ensuring that it is optimal and personalized at any given moment. AI-powered solutions will continuously monitor human behavior, proactively anticipate challenges and opportunities along the customer life journey, and adjust coverage to provide contextual, personalized offers.
For example, an AI-powered insurance program for cars might monitor driving behavior and adjust coverage levels based on factors such as the time of day, the weather, driving patterns, road conditions and the driver's history. This will enable insurers to tailor more specific products and programs to each individual and could lead to lower premiums for safe drivers.
Similarly, as part of a Smart Home an insurance program might use AI to monitor the condition of the property and adjust coverage levels accordingly. For instance, if the roof starts to leak or the furnace stops working, the insurance program could automatically adjust the coverage to provide the necessary protection.
Overall, the insurance industry of the future will be characterized by highly flexible and personalized programs that use AI to continuously monitor and adjust coverage levels. This will enable insurers to provide optimal protection to their customers and adapt to changing market conditions.
Telematics will take personalization to the next level
In the coming years, we can expect to see significant changes in the world of telematics and connectivity, with a greater emphasis on digitization and personalization. One example of this is the growth of usage- or behavior-based car insurance policies, which are becoming increasingly popular among insurers.
For instance, Nationwide, one of the largest US insurance carriers, expects that within a few years, around 70 percent of newly issued car policies will be based on usage or behavior. This trend will require insurers to use advanced analytical models and machine learning algorithms to analyze, in real time, the vast amounts of data generated by connected cars and phone sensors. This will enable them to create personalized insurance offerings that are tailored to each individual customer. In addition, telematics will provide an opportunity for insurance companies to engage real time or near real time, with its customer base and offer it personalized complementary services and other relevant information.
AI and analytics will be paramount to the success of insurance companies
To keep pace with these developments, insurance companies will need to invest in AI-powered tools and solutions and flexible technology that will enable them to operationalize and utilize advanced ML algorithms capable of analyzing vast amount of real-time high frequency data. More than nine out of 10 insurers are relying on third-party risk and customer data – but less than half are effectively leveraging real-time data.
2023 will accelerate the trend of AI democratization. Ultimately, simplifying AI to the extent that it can be shared with business leaders, so it is not solely in the hands of Data Scientists or technical people. This will lead to more informed business decisions and better customer outcomes. However, for businesses to trust the broad usage of AI, there needs to be a mechanism that provides stakeholders and business professionals the ability to interpret complex AI decision-making processes and ensure they abide by regulatory demands.
However, it’s critical that potential bias and privacy concerns are addressed. To mitigate the risks, insurers can use fairness metrics to evaluate their algorithms and techniques such as data perturbation and differential privacy to protect the privacy of individuals. It is crucial for them to use explainable and responsible AI to ensure algorithms are more transparent, interpretable, and fair.
In conclusion, the insurance industry is undergoing a major transformation, with new technologies and business models making it possible for insurers to offer highly flexible and personalized coverage. In the next decade, we can expect to see a shift towards insurance programs that are continuously monitored and adjusted using AI to ensure that they are optimized for each individual customer. Telematics, connected cars, and Internet of things will play an important role in the acceleration of digitization and personalization processes.
To keep up with these trends and maintain a competitive edge, insurance companies will need to invest in the development of AI-powered tools and solutions, while at the same time develop and invest in explainability solutions that will instill trust in business professionals, regulators and consumers. This will enable insurers to provide optimal protection to their customers and adapt to changing market conditions.