Insurance, compared to other industries, has not experienced a significant wave of innovation. In fact, this multi-trillion-dollar industry operates largely as it did a century ago. As we look forward to 2020 and the next decade, will insurance continue as it has in the past or make a significant leap into the future? We’re betting on the latter, with blockchain and artificial intelligence (AI) leading the way. Following is a look at these technologies and five key ways they are transforming insurance.
What is Blockchain and AI?
Blockchain and AI are more than Bitcoin and the Terminator. You don’t need to understand cryptocurrency or robotics to benefit from these technologies. Let’s start with some simple definitions:
- Blockchain is a distributed database or ledger that manages transaction activities without a central party in control. Each block holds data relevant to the transaction and the chain transfers things like money, property, and contracts securely and transparently. With blockchain, a transaction’s figurative brick walls become glass walls where parties can share data, interact with each other, and automate processes without compromising data security or giving up operational control.
- Artificial intelligence uses algorithms designed to make decisions with real-time data. AI combines information gathered through sensors, digital information, and remote inputs. The collected data gets analyzed and the insights acted upon immediately. Artificial intelligence works to replicate human decisions. Just like people, the technology grows smarter over time improving its abilities and speed.
How are Blockchain and AI impacting the insurance industry?
Claims Processing
Blockchain and AI are bringing new efficiencies to the claims process. The ability to share information digitally between parties offers improved speed and accuracy. Consider the entities involved and information exchanged for a property damage claim from a fire today. Paying out the claim could take months while the parties manually work through the details. Blockchain creates seamless sharing of data. One company using blockchain and AI settled a claim in three seconds, down from their best performance of 11 days. This carries significant implications for sales and service as a competitive differentiator among insurers. According to JD Power & Associates, the time-to-settle metric is a top concern for customers. After all, consumers cannot fully judge an insurance product at purchase, but rather when they need to receive payment.
Fraud Prevention
US insurance fraud is estimated at $40 billion annually. This translates to $400-$700 in increased premiums at the individual level. Industry complexities, multiple parties, and paperwork-driven processes make insurance prime for criminal activity. Blockchain reduces the gaps created by all the moving parts and allows for better coordination between insurers. Shared information within the digital ecosystem creates better data security controls while also improving transparency around suspicious activity. This combats issues like multiple claims filed for the same incident, counterfeiting, and unlicensed broker sales. AI further enhances security with measures like facial recognition for identity verification and image modules able to distinguish between genuine and fraudulent damage.
Data-Driven Decision Making
The use of real-time data allows for more dynamic pricing, quicker insurance quotes, and anticipating risk within a captive based on actual data versus historical models. Granular data also paves the way for new models like usage-based or peer-to-peer insurance. Smart contracts are a byproduct as well. These self-executing contracts match data to the agreement requirements for trusted transactions across different parties in the blockchain without the need for external enforcement or regulation.
Internet of Things (IoT) Devices
IoT devices make insurance a tangible product and are becoming a larger revenue stream for insurers. IoTs gather information and act on the data. Already proving successful in tracking driving behavior for auto insurance, these devices are accompanying more policies of all types. IoTs can provide proactive alerts around things like gas and water leaks to prevent losses, while also tracking how long an issue persists to fight negligent claims. IoT devices are growing in popularity within Workers’ Compensation as well by providing claimants with wearable devices to track mobility for avoiding overpayments.
Customer Experience
These technology innovations all mean a very different customer experience. An industry largely driven by relationships is transitioning to digital delivery for its customers. This includes personalized online chatbot conversations for insurance quotes, digital workflows for filing claims, and allowing consumers to mix insurance products based on unique individual needs. Plus, insurers are creating a value-added service by proactively identifying risk issues for customers – something largely missing from the industry until now.
Exciting things are on the horizon for insurance and risk management. Having just celebrated our 10th anniversary, myCOI is ready for what the next 10 years have in store and looks forward to being at the forefront for the insurance industry’s digital transformation.