AI is transforming the insurance industry. In this final part of Insurance Post’s and PayPal’s three part series, Fiona Nicolson explores how AI could play a role in improving security in the insurance sector and help alleviate the economic pressure underinsurance brings.
Insurance companies face several challenges in the current economic environment, including rocketing inflation, supply-chain issues, and a cost-of-living crisis. Underinsurance is another major concern for the industry, as customers reduce or do without insurance to save money in difficult times. But this can leave them financially vulnerable.
Both individuals and businesses are cutting back. Aviva’s annual risk insights report, published in January, found that 50% of businesses will likely be underinsured. Last year, in a British Insurance Brokers Association (BIBA) survey, 9% of brokers revealed that customers are no longer insuring their homes, and 38% reported that customers had removed add-ons to their buildings and contents insurance. An NFU Mutual poll in February showed that despite inflation, just 4.8% of homeowners intend to increase the cover for rebuild costs.
Jason Chambers, head of digital and data solutions at Aviva, says: “Underinsurance is a blight on our customers and causes uncertainty and difficulty for businesses whose cover may be insufficient to help them recover fully after a loss.”
However, the emergence of AI is helping insurers to better understand the scale of the problem and how to tackle it, as Chambers explains: “We introduced an AI-enabled commercial intelligence tool (CIT) last year. By blending our internal AI analytical models with sophisticated third-party geographical data, we can automatically identify property underinsurance across our commercial account.
“CIT has already helped our underwriters assess over 70,000 policies in the last 12 months, addressing over £800m of buildings underinsurance,” he adds.
AI and customer-service improvements
The scope for AI to enhance insurance is extensive, whether across commercial or personal lines. Dan Huddart, chief technology officer at home-insurance specialists Homeprotect, part of the Avantia Group, says: “AI is initially about improving the efficiency of what we have today. We’ll see some services improve due to AI, and then new services will be possible.”
We introduced an AI-enabled commercial intelligence tool last year. By blending our internal AI analytical models with sophisticated third-party geographical data, we can automatically identify property underinsurance across our commercial account.
Jason Chambers, head of digital and data solutions at Aviva
One of the main areas where AI is already making a difference is customer service. Chambers says: “Using virtual assistants and chatbots to help with some of the most common queries offers customers quicker solutions. This allows our colleagues to concentrate on helping customers who may need help with more complicated queries or require more support.”
A fast and user-friendly process is also necessary for meeting and exceeding customer expectations. Tom Mansfield, data and analytics director at Axa Retail, says: “We are training AI models using historic policy documents. Reducing time spent on admin is a top priority for customers, so we aim to use AI to help deliver easy-to-understand policy information quickly and in a more personalised way.”
The 2023 PayPal eCommerce Index unveils that 64% of UK consumers embrace AI in their daily shopping, with 61% enthusiastic about AI’s ability to identify the best products, prices and promotions. This presents an opportunity for insurers to harness AI to elevate customer service and develop ground-breaking products like usage-based insurance.
“AI has captured the world’s attention and imagination, but for many of us, it’s already a normal part of our day-to-day lives,” comments Vincent Belloc, vice president and managing director, PayPal UK. “From using facial recognition on your phone, receiving weather predictions or in-app chatbots – AI has become so ubiquitous that we may not even realise its presence.”
Benefits for insurers
AI is not just making customers’ lives more accessible; it is also helping insurers reduce costs and improve efficiency, explains Huddart:
“The recent developments in large language models have opened the possibilities for technology to help with language-based activity, which is so relevant for customer services and communications. Whether it’s assisting in summarising correspondence, checking policy coverage, sifting through data, quality checking calls or organising claims, the list of tasks which could be sped up and made more accurate with AI assistance is endless.
“Of course, these also bring cost efficiencies for us, ultimately driving down customers’ prices,” he adds.
The claims process is one of the key areas where both insurers and customers can benefit from AI. Research by Data Bridge, published in January, reveals that when applied to insurance claims, AI can lower processing costs by 50-65% and processing time by 50-90% while simultaneously enhancing the customer service experience.
A McKinsey report, which predicts how the insurance industry will look in six years, also indicates a significant speeding up of the claims process. It anticipates that by 2030, more than half of claims activities will have been automated, with customer-service apps handling most policyholder contact. It estimates that the turnaround time for claims could reduce from days or weeks to minutes.
“Let’s not forget about security and the impact AI can have on fighting fraud, cybersecurity issues and data breaches” adds Belloc. “It can be challenging for utility companies to keep pace with rapidly changing customer behaviours while protecting their security, reputation and bottom line – by analysing large data sets, powerful AI models can help organisations detect and prevent fraudulent activity in real-time.”
Keeping sight of the customer
However, Huddart emphasises that despite the benefits of AI, it is important not to lose sight of fundamental customer requirements, as he says:
“The insurance industry should remember that AI is a tool to create a better service or product, not a product in itself. For example, customers don’t seek AI chatbots; they seek quick, clear, and accurate answers to their questions.
“If you ask a customer what they want from their insurer, they are unlikely to mention AI. They are unlikely to even talk about channels. Our research shows that what customers seek most is to be able to get quick, clear, confident answers from an expert.
“For that reason, we think having a UK call centre available for customers who want to speak to an expert is important. But behind those helpful humans, AI is starting to transform their roles.
He concludes: “AI has prompted a new era of tools and services. Our services as businesses must evolve to take advantage of new technologies, but what we do for customers remains the same.”
The human factor
James Nicholson, Zurich UK’s head of claims, also takes the view that the human factor is still vital for helping people better understand the intricacies of insurance and why they need it, as he says: “Insurance is a people business and depending on the circumstances, brokers and insurers are the best people to advise and educate.
“Technology has a place, but many customers want the human touch and empathy. That said, there are many ways that AI can educate people about the importance of insurance. Chatbots are a great tool; they drive instant customer interactions, answering their questions and providing information and guidance about insurance products and their benefits. Education for customers on the importance of insurance can also be achieved through predictive analytics and historical data to demonstrate the impact and risks associated with underinsurance or not having insurance.”
Mansfield points out that it is crucial to recognise AI’s limitations: “AI solutions have great potential, but it would also be risky to rely on them for direct customer interactions. Insurance is complex, so there is a risk that if the model isn’t confident about an answer, it may try to answer it anyway and provide a response that isn’t wholly factual. We therefore believe it is important to take a cautious approach.”
One of the areas where AI’s capabilities quickly outstrip those of humans is that of helping to improve security and prevent fraud and cyber-attacks.
Nicholson says: “Smart use of AI can go a long way in disrupting financial crime and should be considered a key enabler of any counter-fraud strategy or wider financial crime/cyber policy.” He adds: “AI-driven solutions can detect anomalies which the human eye cannot.”
As the insurance industry continues its journey into an AI future, there is much to consider along the way, including ensuring that AI use is fair and ethical: “Insurers should have ethical AI principles, a supporting assurance framework and ethical assessment processes,” emphasises Nicholson: “It is also important to have an ethics committee with a diverse and broad range of contributors ensuring that adequate challenge is provided to any new developments.”