The life insurance industry is already being revolutionized by artificial intelligence in three vital functions.
If insurers haven’t already adopted artificial intelligence (AI), they will soon. Insurance industry leaders polled by Accenture said they believe that AI will “significantly or completely alter” the industry over the next three years, with a majority (68%) reporting that they currently incorporate some form of AI into their operations.
AI has the potential to transform all segments of insurance, from auto to health. Perhaps its greatest impact will be in life insurance, however. Indeed, several experts have argued that it could transform every aspect of it.
Data Collection and Analysis
Underwriting a life insurance policy requires an extensive database of actuarial information from third parties combined with information from the applicant. An AI algorithm can analyze those two data sets to determine how the applicant’s risk profile stacks up against comparable life insurance buyers. While this streamlines the review process for insurers, there’s a benefit for the customers, too.
“This machine-based process gives life insurance customers added layers of value for the information they hand over during the application process,” explains Todd Rogers, Chief Technology Officer at Haven Life, in a VentureBeat article. “For example, it enables an instant decision on coverage and offers more competitive pricing due to higher accuracy and therefore less risk.”
Even before the data is analyzed, however, AI streamlines the data collection process by linking information once held in different spreadsheets or siloes, notes Bob Crompton, VP of Actuarial Resources Corp., in an Society of Actuaries article. He further declares that AI is an “obvious choice” for data preparation.
“Implementing AI for data preparation releases expensive staff for other tasks,” he writes. “In addition, AI reduces errors in the preparation process because of the ability to review the process globally as well as locally, and because AI can be 100% attentive all the time — unlike people.”
Application and Claims Review
AI can spot inaccuracies in an application or claims that a human specialist might miss, Daniel Wesley, founder of CreditLoan.com, writes in Forbes. “Using AI to review and decide the fate of a claim eliminates emotional subjectivity from the equation,” he says. In those instances when AI may fail to detect a fraudulent claim or a patterns of inconsistencies, the system can be programmed to flag possible errors. Wesley adds that AI has enabled insurance companies to reduce the number of payouts for fraudulent claims, which leads to more accurate premium prices for all applicants.
With AI, insurance companies may eventually eliminate the traditional method of risk pooling of to determine rates. With AI, insurers are able to assess each individual’s mortality outlook and, therefore, premiums. “If AI is astute at risk classification, it is possible that each policyholder would be in her own risk class,” Crompton writes.
“In other words, we would have personalized premiums — designed and calculated on a custom basis for each insured... Everything will be individual-based predictive analytics.” Crompton points out, however, that any shift from risk pooling to a personalized premium system will require regulatory changes.
For life insurers, the challenge isn’t whether to adopt AI, but how soon they should and for what functions. Incorporating AI now will pay off in the future as the industry explores the advantages this innovative technology provides in underwriting, data collection, and rate setting.