Broker Check

The Future of Insurance

July 09, 2021
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McKinsey & Company has published an article by Ramnath Balasubramain, Ari Libarikan and Doug McElhaney on how artificial intelligence will impact insurance by 2030. The article is at https://www.mckinsey.com/industries/financail-services/our-insights/insurance-2030-the-impact-of-ai-on-the-future-of-insurance#. While we can can be skeptical that futuristic visions will be realized in detail, judging by present trends the broad picture is realistic. However, the authors have largely ignored possible pitfalls toward achieving their vision.

The authors forsee a seismic, tech-driven  shift in insurance which will affect customers, agents and insurers. Insurance will shift from a state of "detect and repair" to "predict and prevent", with advanced technologies used to enhance decision making, lower costs, and optimize customer experience.

The authors describe four AI-related trends:

  1. Explosion of data from connected devices. There will be an estimated one trillion connected devices by 2025.
  2. Increased presence of physical robotics, including 3-D printing (which creates its own hazards), autonomous drones and equipment, and surgical robots. These will radically reshape both manufacturing and commercial insurance.
  3. Open source protocols will insure data can be shared across industries. Public and private entities will create data ecosystems.
  4. Advances in cognitive technologies will become the standard approach for processing data. New insurance products will respond to changes in  risk in real time.

How will these changes affect insurance?

Distribution: Insurance will be purchased in minutes by a wide range of customers. Payments will be authorized using blockchain. Commercial insurance purchases will be expedited by drones, IoT and other data providers. Instead of annual renewals, coverage will continually adapt to changes in individual behavior. New products will cover changes in living and travel.

Agents More reliance on technology will increase productivity. Agents will transfer to process facilitators and educators. They will sell nearly all types of coverage tailored to each individual client.

Underwriting and pricing: Personal and small business underwriting will be automated with information collected from a variety of sources and devices. Regulators will review AI-based models for appropriate pricing and conformity to public policy. There will be less competition on price and more on product differentiation.

Claims: More than half will be processed through automation, starting with the first notice of loss. IoT devices will monitor risks proactively and alert insureds and insurers of issues. Claims can be resolved in minutes. Humans will concentrate on complex, unusual and contested claims. organizations will focus on risk monitoring, prevention and mitigation.

Insurers can prepare now for  change:

  1. Officers and directors can get smart on AI-related technologies and trends.
  2. Develop and implement a strategic plan.
  3. Create and execute a comprehensive data strategy.
  4. Create the right talent and technology infrastructure.  

 The authors for the most part do not address the obstacles to arriving at their "brave new world". Here are several:

  • The ever-growing risk to cyber security. In addition to cyber crime not limited to ransomware, and hacking of IoT devices, technically savvy individuals and organizations could game the system to commit fraud, possibly through "deep fakes".
  • Algorithms must be constructed to minimize possible biases, and will require input from programmers with diverse backgrounds.
  • Data sharing may conflict with anti-trust laws.   

Despite possible obstacles, change is coming and we must be prepared.