Chapter 3:
Artificial Intelligence and the Property Insurance Industry
Over the past decade, companies across every business sector have been pursuing digital transformation—the digitalization of business processes through an ecosystem of cloud-based technologies.
Still, every industry has collectively embraced digital transformation at different times, and even different companies within the same industry have pursued digital transformation in different ways and to different degrees. Some industries have been quick to “take the plunge,” while others have been slower to dip their toes in the water.
Digital transformation is the process of automating and streamlining processes across an organization, from core business models and operations to customer experiences. It leverages advanced digital technologies—including AI, automation, and hybrid cloud—to harness data effectively. The ultimate goal is to drive intelligent workflows, enable faster and smarter decision-making, and ensure the business can respond to market disruptions more quickly and effectively.[10]
Compared to other financial industries, the property insurance ecosphere—which includes the fields of underwriting, claims, catastrophe risk management, and property restoration—has been on the slower side to digitalize. Until the last decade, it has been relatively common for property insurance supply chain members—from adjusters and inspectors to contractors—to rely on traditional, and sometimes even analog methods, to carry out their tasks.
For example, some companies still use paper and pencil or static spreadsheets to produce project estimates.
The Difference Between Automation and AI
Automation and artificial intelligence are related technological concepts, and both are core components of Insurtech. Even though these two forms of technology overlap, it is essential to know the difference between them. A technology solution can automate with AI, but there are other forms of automation, too. Often, AI takes automation to the next level.
Automation is a category of technologies that can repeatedly complete tasks or carry out processes without manual intervention. Robotics, software, and artificial intelligence can all be automation technologies.
Automation technology works based on built-in triggers that prompt a machine to take specific actions, completing predictable, repetitive, routine tasks that humans must otherwise spend significant time addressing themselves. While automation tools perform and streamline repetitive administrative tasks through standardized workflows, a human programmer must rewrite rules and scripts whenever a workflow requires a change or update.
AI is more sophisticated than pure automation; it simulates human behavior and can react to certain events independently instead of strictly following a specified string of actions. It relies on algorithms that can readjust and update rules and scripts to change workflows as necessary to meet business needs. These algorithms can be programmed from the outset to evolve, allowing the machine to react appropriately to unpredicted catalysts.
AI-driven technologies can perform automation, but they can also diagnose issues and self-correct. They can meaningfully analyze large quantities of data to produce intelligence that enables businesses to plan, strategize, and overcome problems. It can steer workflows instead of just carrying them out.
The Evolution of Insurtech
Insurtech solutions—technology designed for the insurance industry—have become commonplace in carrier ecosystems since the early 2010s.
According to the Insurance Information Institute (III), Insurtech refers “to the use of apps, big data, machine learning, and other transformative technologies to automate and improve processes across the insurance value chain” and is a subcategory of the Fintech (financial technology) space.[11]
Insurtech touches every component of the insurance process—from policy origination through claim completion and property reconstruction.
Throughout the 2010s, property and casualty insurance carriers increasingly began to use the following types of AI-based solutions:[12]
- Data collection tools for underwriting risk assessment
- Chatbots to provide automated customer service for policyholders
- Data modeling for predictive weather forecasting
- Virtual property inspections
- Drones for collection of aerial imagery[13]
COVID-19:
Accelerating the Use of AI-Driven Insurtech
The COVID-19 pandemic accelerated digital transformation within all industries. No matter where a company was in its digital journey in 2020, the global pandemic and resulting lockdowns forced people to figure out how to conduct operations in innovative virtual ways.
For many companies, AI technology provided the only avenues they could use to continue operations.
COVID-19 shone a bright light where people were lacking digitally. In hindsight, business within many big insurance companies wished they had integrated AI more efficiently into their business operations well before an event like the global pandemic.[14]
Now, years later, the time is beyond ripe for insurance carriers and restoration contractors to integrate Artificial Intelligence into their digital ecosystems and business processes.
Over the coming years, AI will transform processes across the industry. It will drive more accurate risk assessments for better rate-making for underwriters. AI technologies will streamline claims processing and determine repair costs by processing property damage photos. AI can also analyze data to predict certain weather risks so insurers can better prepare their policyholders. With AI-driven insights from customer data analysis, insurers can develop personalized products. Organizations will also be able to use customer sentiment capabilities to understand the emotional context of customer conversations to help employees better guide their responses to policyholders.
The 2021 KPMG CEO Outlook Survey showed that 96% of the global insurance CEOs said that the pandemic had accelerated the digitalization of their operations through next-generation operating models. This survey also concluded that, in response to the pandemic, 76% of insurance CEOs said they planned to increase the use of tools for digital collaboration and communication.[15]
According to Dan Reed, the founder of American Family Ventures—a firm that invests in promising, up-and-coming insurance companies—AI-driven digitalization will be a cornerstone to success for insurance providers of the future.
“Every insurance company we know has made it a priority to increase the pace at which they adopt digital tools across their value chain,” Reed said.
“What that dynamic means in a competitive, low-margin industry like insurance is that keeping up with digital leaders will become more and more challenging. The recent breakthroughs in AI tools represent a steepening of the technology curve, and we expect to see significant investment into these capabilities in the next several years.”
[11] https://www.iii.org/article/background-on-insurtech
[12] https://www.lovelandinnovations.com/blog/brief-history-ai-pc-insurance-industry/
[13] https://www.lovelandinnovations.com/blog/brief-history-ai-pc-insurance-industry/
[14] https://www.computerweekly.com/news/252488548/Insurers-accept-they-were-slow-to-adopt-digital