Closing Thoughts

Up In The Clouds

How AI will improve the insurance industry

by Paul Ford

Mr. Ford is co-founder and CEO of Traffk, an innovative insurance underwriting and distribution platform designed to build and launch modern insurance products and brands that scale. Visit https://www.traffk.com/.

The history of insurance dates back to the ancient world and was used by merchants to limit the loss of goods being transported across treacherous waters. Around 600 B.C. the Greeks and Romans formed the first recorded life and health insurance policies which were managed by benevolent societies to care for the families of deceased citizens.

But modern insurance’s roots began with the Great Fire of London in 1666. After more than 30,000 families lost their homes in the fire, a man named Nicholas Barbon started an insurance business to help protect homeowners from future calamities. The first insurance company in the United States opened in 1732 and was also one that protected policyholders against fire losses. Since then, insurance has evolved and developed to become an essential safety net for many people not just for their home but for their health and protection of a family’s future. But over the last half a century, the industry has become complacent to change and remains stuck in the past. The COVID-19 pandemic has shown a spotlight on the changes needed in the insurance industry not just to help companies survive but to also make sure that every American has the option to purchase essential coverage in a timely and efficient manner.

Before March 2020, if you wanted to purchase a life insurance policy, you would talk to an agent, answer questions, visit a doctor to get a physical and then typically within three to four weeks, you would receive the information about the policy you qualified for. When the pandemic forced businesses to shut down and people to quarantine at home, potential policy purchasers could not go to doctor’s offices to get the required physicals and the wait to get information about and become approved to buy an insurance policy stretched from three to four weeks to three to four months of waiting.

Face To Face

Prior to the pandemic, tens of thousands of insurance agents working across the United States had only ever met with potential clients in face-to-face meetings all of which came to a halt once social distancing rules were put in place. Most agents did not have digital strategies or technologically advanced tools from their company to help them transition to a digitally based sales strategy and therefore could not connect with current or future clients.

In addition to these digital deficiencies, the entire industry tends to develop products off of outdated mortuary tables from the 1970s and 80s instead of taking advantage of the plethora of data available today. Data that could help them develop products to reach new audiences. The lack of digital adoption isn’t just slowing the insurance buying process down, it is limiting the customer base for agents and creating outdated products that aren’t needed or useful.

Leaders in the industry know they have a problem. According to a McKinsey report, nine of out ten insurance companies identified legacy software and infrastructure as barriers of digitization. While a PwC survey found that 41% of respondents said they were likely to switch insurance providers due to a lack of digital capabilities and that 53% said they were likely to use digital channels to engage with their insurers within the next 90 days. Legacy insurance companies have seen start-ups like Lemonade Insurance succeed.

From the very beginning, Lemonade has based their model on incorporating insurtech into the insurance process and has transformed the process of buying insurance making it easy and transparent for consumers. Consumers appreciate it and are taking notice. In just 4 years, Lemonade signed up 4 million active customers, an accomplishment that took other insurance companies decades to accomplish.

Insurtech Emerges

In the United States more than 196 million people do not qualify for life insurance at all because of previously existing or underlying conditions. That is because most life insurance companies only use 5 categories of input to develop their policies...

Technology makes purchasing insurance available to a wider audience but it can also help companies assess their risk and better serve their customers. Insurtech can help companies price products more competitively, create products that consumers want and improve the insurance buying process making it easier for both the client and the agent.

Insurtech solutions can offer cloud-based infrastructure to both owned and partnered distribution and can help a company rapidly design, develop and distribute bespoke insurance products. Risk management services including proprietary alternative data sets, streamlining portfolio management and digital risk experience monitoring can also help improve efficiency, profitability and growth for carriers, reinsurers, underwriters and distributors.

With insurance technology companies can have access to more than 4,000 robust data points and artificial intelligence can quickly and easily analyze the data to calculate risk. Insurance technology can also analyze information from previous doctors’ appointments and medical records so that the potential new client does not have to make a new doctor’s appointment or spend time getting a new physical because the health reports and the data needed are already there, it just has not been used before.

Insurance technology also enables insurance companies to create new technology-enabled insurance products that protect consumers and insurers and create new products to reach new audiences. In the United States the potential new audiences are substantial.

Cloud Based Artificial Intelligence

For instance, in the United States more than 196 million people do not qualify for life insurance at all because of previously existing or underlying conditions. That is because most life insurance companies only use 5 categories of input to develop their policies: male, female, smoker, non-smoker, and age and they automatically deny people with conditions like diabetes. They do not take into account if someone has successfully managed diabetes for years or that they are healthy otherwise and have received good bills of health from previous medical exams.

Cloud-based artificial intelligence assisted software can process thousands of different data points from more than 20 years of mortality, demographic, health and government trends resulting in a totally different, more dynamic algorithm which would help insurance companies to create new classes or a spectrum of policies so that someone is not rejected but has access to applicable, affordable insurance. With 60% of the U.S. population diagnosed with diabetes that is a tremendous number of potential new clients.

Not only do these new classes of policies allow a company to reach a whole new audience and profitably boost their bottom line, but it creates goodwill with customers. If you are the first carrier to reach out to this previous neglected audience with a legitimate campaign and provide more accessible inclusive and useful products, it will have far reaching benefits to your company’s image and public relations.

A wider client base also benefits all consumers as the cost of insurance policies will decrease when more people are buying into them.

To get the most out of the plethora of data, insurance companies need to have robust data management plan in place. A Data Science-as-a-Service (DSaaS) platform can help insurance companies more precisely determine risk, create better, more appropriate products for their clients and improve customer experiences. This enhanced data can also help insurance companies price products more accurately, be able to understand the demographics of who is ready to buy and get the right risk on their books – making them more profitable in the end.

In our digital world, data, and the ability to fully analyze it, is critical to insurers’ survival. The businesses that will succeed will be the ones that can quickly analyze and adapt to data to make better business decisions which will help them better and more quickly serve their customers.