INSURTECH : Slow But Not Steady Adopters

AI has all the makings of super facilitator for efficient claims processing, reduce claim costs, attract less risky clientele and improve underwriting practices. Yet, the insurance industry is a slow adopter of technology. Mr Nameer Khan, a transformative consultant, traces the reasons.

Originally published in: Middle East Insurance Review | February 2018

Artificial intelligence (AI) has been part of the buzz at InsurTech conferences and various insurance platforms where the insurance industry is still lacking cogency and a firm grip on the subject. The industry has yet to fully embraced AI apart from a few early adopters who have specialists in place. But for others, there is no going back as it is an inevitable path as the future insurer will be heavily reliant on it. At this present stage, you will not find many embarking on large-scale implementation of it despite the fact that insurers have always been datacentric. Therefore, AI will only be complementing insurance instead of being a burden. The impact of AI is definitely going to be exponential and the speed of digital revolution is unprecedented. Deep learning and machine learning are two emerging AI technologies which will reach mainstream adoption by insurers in two to three years’ time. Machine teaching is perhaps going to be the most exponential trend in the AI revolution. This is where the IoT devices teach each other like one Tesla car teaching another Tesla how to self-drive. This will mean that very little training data will be required instead of massive training data right now needed to train models as any new IoT device will learn from the collective hive mind. It can be adversarial too like one bot trying to fraud and hack and the second to detect the fraud and hack and overcome it. AlphaGo Zero is a prominent example of this as it required no training data and played against itself, and it plays chess now like a super-intelligent alien. 

Insurers must become proactive orchestrators or history will make them passive back-seaters accepting risks from their InsurTech partners.

Enhanced efficiency AI’s entry into insurance will herald efficiency like never before. This will be seen in:

• Enhancing business process, including accuracy of underwriting, customer segmentation and marketing;
• Efficient claims processes and reduce future claim costs; ? Ability to attract a less risky clientele and improve underwriting practices
• Dynamic risk pricing based on the immense data accumulated
• ? Deepening customer relationships, eg, feedback loops, actively monitoring customer risk, creating a different relationship and tailoring services
• Improved management of an insurance portfolio; and
• Building autonomous organisation that scales exponentially without requiring as many employees.

Blockchain knitting together

Blockchain is the future but the tokenisation still faces a lot of regulatory hurdles. The anonymity further allows illegal money, terrorist funds and other bad stuff to rely on cryptos for carrying out transactions. We still have to see how the cryptosphere evolves, but it would be useful to separate the architecture of blockchain from cryptocurrencies. Blockchain promises to give trust, speed and transparency to transactions like never seen before and would eliminate the administrative clerical work that is done currently.

Changing role of actuaries

There has been a debate over what the future would be like. Would actuaries be replaced? Would these highly sought-after resources be replaced with machines far more cheaper and efficient capabilities? The combination of human and AI is only going to enable a fantastic combination of skills to drive a competitive advantage. The blending of both resources is only going to enable far more superior and relevant product development which will be focused around the customer only. That is the true opportunity of AI. However, actuaries must become more proactive in AI skills and knowledge. The old standard career path will not be as effective as it was for the previous generation of actuaries. Actuaries have much-needed skills like critical thinking and problem solving, but these are heavily underutilised due to rigid legacy system and outlook. It is time to rise up to the challenge so that AI energises the actuary and not replaces them.

New role of the insurer

Society will benefit from the potential “new role of insurers” as risk signals to consumers are improved. For example, improved capabilities in motor telematics will allow insurers to signal risks to consumers to adjust their driving habits before they have an accident. The same goes for wearables in health insurance. Insurers must become proactive orchestrators or history will make them passive back-seaters accepting risks from their InsurTech partners. Some key points to understand are:

• Customers expect the same service as they receive from digital platforms and services. No insurer can ignore technology now;
• Millennials are the largest population in emerging economies like the Middle East. They want convenience, digital presence and with social impact, and insurers must provide all of these; and
• There is no going back. Corporate bureaucracy and politics might be sustaining the status quo but not for long. If employees are mired in politics and hierarchy decides everything, then insurer cannot innovate or match up with InsurTech.

Having more employees does not mean more revenue or presence. Automation and AI are leading to organisations that are low on employee count but can generate the same revenue as a big insurer as these few employees are highly skilled.

The way forward

The Middle East has been a slow adopter of InsurTech as insurers lack true understanding of how “relevant” technological advancements will bring an impact to the end user and the company itself. There has been some activity in the region, but it has been either on the surface with no real development on the backend which is core to transforming a future-forward insurer or at conferences where insurers would present their new models but no action is taken. Slow adoption is also due to the lack of awareness among the users in the region. They have not truly understood the radical change that technology can bring. Religious limitations do play a role too. The rhetorical question remains: When other industries have tackled such challenges in the GCC, why can’t the insurance industry? Leaders in insurance will be those who are successful in creating unique experiences across the value chain through a combination of multiple touch points, data insights and business resources by blending digital technologies.

Mr Nameer Khan is an InsurTech strategist with specialisation in innovation.

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