Where is the insurance industry placing its AI bets?

A staggering 85% of insurance organizations see digitization as their top strategic priority, and a majority of their investments are going towards improving the technology stack. As a result of this surge in investments, a report by Drake Star found that the global insurtech industry is expected to reach a market value of $158.9 billion by 2030.

The insurance industry is set to be one of the biggest investors in the AI boom. This trend is rising because of the sheer efficiency that technologies like AI, machine learning (ML), and deep learning (DL) bring to the table. These innovations are spearheading insurtech’s growth — proving that even highly regulated industries are playing an important role in the mass adoption of AI.

Why AI investment in insurtech is on the rise

Businesses are realizing the importance of leveraging AI and why this is not just market hype — but reality. From process efficiency to cost savings, these are some of the few reasons why the insurance industry has joined others in the insurtech arena.

The insurance industry has traditionally been slow to adopt technologies or newer processes because of tedious, manual processes, legacy systems, and compliance requirements. However, with the surge in AI applications tailored specifically to optimizing the insurance lifecycle, insurance providers are now getting ahead of the trend and positively impacting their bottom line.

Currently, there’s enough validation in the market showing AI’s potential to improve various stages of the entire insurance process — whether it’s underwriting, claims processing, fraud detection, or customer service.

Top areas of significant AI investment

Accenture reported at least five instances of VC funding rounds over $100 million into AI-led insurtechs in 2021 alone — a strong indication of the rising potential for insurers to boost market and investor confidence through strategic investment in AI. There are a few areas where insurtechs are introducing AI-driven solutions the most:

1. Risk assessment & underwriting

Underwriters can spend a lot of time reviewing customer’s data, such as credit history and demographic data, for accurate assessments.

Now, with AI-powered algorithms, underwriters can gather and analyze large amounts of data and evaluate risks more accurately. By automating routine and repetitive tasks, such as data entry, underwriters have more time to focus on other tasks that require their expertise.

Automating underwriting processes is helping insurers generate significant cost savings in the long-run, too. Accenture found that underwriters typically spend 40% of their time on non-core and administrative activities because of process inefficiencies. By adopting AI, underwriting operating costs can be reduced, creating up to $160 billion in efficiency gains by 2027.

2. Automating claims

In the past, claims processing was time-consuming, requiring many departments’ resources and involving several manual tasks. With AI, the process has become more efficient, precise, and customer-focused.

AI-driven claims processing now helps insurers settle claims in a matter of hours rather than weeks. As a result, insurers are able to reduce costs throughout the claims process, increasing profitability. AI has consistently ranked the top game-changing technology in Gartner’s CIO surveys over the last three years (2019 to 2021). In these reports, 80% of claims executives indicated AI technologies could bring more value, with 65% saying they plan to invest more than $10 million into AI in the next three years.

3. Fraud detection & prevention

According to the FBI, insurance fraud losses (excluding health insurance cases) account for over $40 billion annually in the U.S. alone. In Europe, insurance fraud is estimated to account for up to 10% of all claims expenditure.

Research by the Association of British Insurers found that most opportunistic fraud cases arise because people trust, or believe, that they’ll never get caught — or that what they are doing isn’t actually a crime. As a result, fraud detection and prevention are massive challenges for insurers.

One significant benefit of using AI, such as visual intelligence, in fraud detection is increased efficiencies for insurers. Visual intelligence can analyze large amounts of data and establish patterns, allowing insurers to spot suspicious activities in real-time. This also decreases the time and workforce required for manual fraud detection, freeing up resources to focus on other areas.

4. Improving the customer experience

One of the top customer pain points in the insurance industry is receiving personalized support. The good news is that insurers are more focused than ever on improving the customer experience. In fact, executives ranked improving the customer experience higher than other more strategic focuses, such as growing revenue or developing new products or services, in the 2023 Gartner CIO and Technology Executive Survey.

The rise of AI gives insurers the power to use automated agents (such as chatbots) to provide quick and helpful responses to customers’ queries and offer 24/7 customer service while still offering access to live support if needed. This hybrid approach is helping insurers cut customer service costs while providing customers with round-the-clock support options. Not to mention, insurers now have access to more data than ever before, making it easier to provide more personalized, dynamic customer experiences.

The potential for hypergrowth

The surge in AI investment in insurtech is a trend and a necessity for the insurance industry to stay competitive and efficient. Integrating AI can potentially enhance the entire process for customers and insurers by improving productivity and reducing costs.

The insurance industry is not only a part of the AI boom but also driving it, as it is one of the sectors with the most to gain from this technology. Many insurtech providers have validated the potential, resulting in higher demand for such solutions, and the time is now to embrace it.

Julio Pernia Aznar is the CEO of Bdeo, a technology company transforming the insurance and fleet industries and the way they engage with their customers through visual intelligence solutions.

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