Science leads the way for a tidal wave of disruption

As insured's needs change, artificial intelligence (AI)-based technology is changing as well. This transformation — dare I say disruption — is impacting the insurance industry and creating challenges for several types of carriers. New technologies and related evolving consumer trends are creating new risks. Digital and AI-based technologies can help insurers deal with these changes, and in other cases are both the disruption's cause and the remedy.

Technology is making waves

Digital technologies create conveniences and other opportunities for consumers. But at the same time, these trends create new challenges for insurers. Consider these emerging disruptive trends and the risks they create:

— Drones: I recently bought a small drone, and what struck me the most was how dangerous it is. What if I lost control in a crowded area? What if I lost control and caused a car to crash? Then I saw the high-end quads and realized what the real danger is. These things have four and a half mile ranges. Although the Federal Aviation Authority bans flight about 400 feet, the facts is, I have seen YouTube videos of flights well above that. Now the risk involves drones potentially interacting with airplanes; the liability and physical damage risks are significant.

— Ride share: The technology that makes ride share companies like Lyft and Uber a popular consumer convenience is also creating new risks for insurers. For example, ride share is impacting car ownership and in some cases, the occurrence of driving under the influence (DUI) incidents and DUI-related death and injury.

— Ever-increasing social media use: In this interconnected online world, every executive's words are scrutinized more than ever before, creating much greater liability exposure, with litigation often following. For directors and officers insurance carriers in particular, this means their business model is riskier and potentially more volatile.

— Autonomous vehicles (AVs): Perhaps one of the biggest looming risks for insurers is how to address the major disruption of an entirely new way of operating a car. The time when a robotic software program will predominantly steer a vehicle is fast approaching. This evolution alone could change personal and commercial auto insurance in profound ways, e.g., will product liability be the main coverage for all AVs?

These examples point to some significant changes that are spurring insurance companies to consider how they structure their products. The rapid pace of these changes requires a very different method of developing, testing, pricing, introducing, and changing these products (while still meeting regulatory mandates). Just as significantly, how insurers manage claims tied to product development has to change. Fortunately, the technologies available to insurers, intermediaries, and third parties are evolving quickly too.

The rapid pace of changes requires a very different method of developing, testing, pricing and introducing new insurance products. (Photo: iStock)

Science is leading the way

What is amazing about current trends in digital technology is that the science itself is helping technologists understand insurance in ways they had little reason to understand before. For example, the following technologies are directly driving impactful solutions to very complex insurance problems:

— Drones: In the aftermath of Hurricane Harvey, both insurance companies and emergency responders deployed drones en masse for the first time to help understand damage, help find victims, and allow insurers to better handle logistical information for claims. In addition, computer vision is helping insurers identify and categorize objects in claims, enabling much more efficient claim adjustments (some are even becoming fully automated).

— Robotic process automation (RPA): In its simplest form, RPA is just a macro that can perform repeatable, predictable tasks. When combined with artificial intelligence and machine learning more advanced cognitive RPA, or intelligent automation, helps companies learn about how things change (e.g., the systems used in a process) and allows them to adapt more quickly. For example, robots are used to enter policy and claims data from e-mail into systems of record, increasing efficiency, reducing errors, and enabling staff to focus on higher value tasks that can further improve the customer experience.

— The Internet of Things (IoT): IoT allows insurers to capture information about their customers in very innovative ways. For instance, connected sensors in automobiles can track speed and distance to allow insurers to better categorize drivers' risk characteristics. In commercial lines, the same types of sensors help both carriers and risk managers reduce loss probability by understanding and managing driver behaviors on a very large scale.

Riding the wave verses preventing it

Underlying many of the most advanced digital technologies are AI and machine learning. AI enables autonomous vehicles. It is part of the brains behind drones, and it powers decision-based intelligent automation systems. Machine learning takes AI to the next level through algorithms that learn over time; the fabric that binds virtually all the aforementioned technologies together is data analytics. Analytics is nothing new to insurance, but the ways insurers can use data is dramatically different as a result of advances in technologies and greater talent that can program and interpret machine learning, and bring new products and services quickly to market.

The ability to gather, organize, and analyze data is well beyond the past capabilities; however, the industry still grapples with the problem of "too much data." This will become less and less a challenge over time as systems and humans get better at seeing patterns in data with AI and machine learning.

There are some relatively low cost actions that carriers can take to benefit from digital disruption:

— Learn about disruptive technology trends: This includes AI, machine learning, computer vision, big data, and the list goes on. This does not need to be formal training on specific technologies; there is much easily accessible information available in industry trade magazines and other publications, podcasts, webinars, etc.

— Prepare your digital roadmap: Determine how the existing technologies fit into your current environment.

— Watch and learn: If you have not started an AI/digital journey yet, you are already a follower. This is not necessarily a bad thing, so learn from what others are doing.

— Train staff: In addition to IT staff that needs to learn about the technologies, there are other types of training that you can undertake now, including how to deal with this disruptive change (e.g., from an HR perspective).

— Experiment: Building simple prototypes at very low cost can help reduce (or remove) the ambiguity associated with technology you may not have experience with. This will help you solidify your strategy without breaking the bank.

In my almost 20 years in insurance, I have not seen such an earnest need and desire for change at once coupled with the capacity to do so. Where we once were the laggards of change, insurance is now at the forefront. While we will certainly bleed a little at the cutting ends (just like everyone else), we will be a better industry for it.

Frank Neugebauer has dual roles at Genpact as the Digital CTO for Insurance and the Digital Consulting lead for the Americas. He can be contacted via LinkedIn.

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