Avoid getting caught up in the AI hype
Most insurance companies have not yet leveraged AI effectively. Here’s advice for getting the most from 2024 tech investments.
As 2023 came to a close, my colleagues and I spent time thinking about some significant trends in the AI and insurtech space.
The most impactful trend we see is artificial intelligence applications becoming pervasive in many parts of the insurance value chain. To date, most insurance companies have not leveraged AI effectively. Many have struggled to build applications that genuinely add value for many reasons. Poor data quality, lack of appropriate IT resources to implement, and a disconnect between end users and the data science teams developing these applications are among them.
With the advent of generative AI in 2023, we saw insurance companies invest in developing AI-powered digital assistants for their frontline employees, be they claim adjusters, underwriters or customer service reps. The benefits of AI are becoming very apparent to carriers, and we believe 2024 will see this trend explode in importance.
AI will start impacting combined ratios
In 2024, you will see more carriers crediting their successes with artificial intelligence as contributing to combined ratio improvements. The last few years have been challenging for property & casualty carriers, with inflation (both economic and social) taking unexpectedly large bites out of their margins. But with more insurers adopting AI to control losses and manage expenses, we believe companies will see their past and current investments in AI as reasons why they’ve been able to manage more effectively.
Companies look for platforms, not products
Many insurance companies have taken the arduous path of upgrading their core systems over the last several years. Unfortunately, few artificial intelligence applications are embedded in these “next-generation” systems.
To implement AI, companies have had to “bolt-on” AI solutions, which can be a difficult task. We see an emerging preference by carriers to migrate their analytics functions to all-encompassing platforms that integrate AI functionality from different use cases into one holistic place.
Better equipped to fight social inflation
Social inflation, the force behind continual inflation in claim case judgments and settlements, has been damaging insurance carriers’ profit margins for several years. We are seeing more and more carriers using tools and data to combat excessive treatment, litigation and nuclear verdicts, and we believe this trend will grow in 2024. The successes our clients have documented in taking a bite out of social inflation’s impact on their combined ratios help us engage more and more carriers, self-insureds and managing general agents (MGAs) in conversation and ultimately deployment of our industry-leading platform in their fight against the trial bar and medical providers colluding together to extract unreasonable verdicts and settlements.
As more attention is drawn to what works to combat social inflation, look for more carriers to adopt AI focused on fighting it in 2024.
Too many companies squander AI opportunities
Our trends for 2024 are upbeat regarding the growing adoption and utilization of artificial intelligence in the insurance industry. More carriers, self-insureds, TPAs and MGAs are jumping into the pool, which is great to see.
There is much hype to consume, and newbies are cautioned to investigate thoroughly any vendor claims and ask for tangible proof of past success. In many cases, especially in the insurtech space, vendors may be looking for their first true success — that is, one that shows tangible improvements to critical KPIs. “Slow and steady wins the race” is an excellent adage for AI experiments. But because time is of the essence, this approach needs to be married to the precepts of agile development, where progress is measured in two-week sprints, and course corrections are continuous.
As first seen in PropertyCasualty360.
