It’s a scary thing to imagine a world run by robots. Not the sort portrayed in films and tv shows where machines revolt and we end up being chased through time by Arnold Schwarzenegger, but the sort where most jobs are done by machines. In the next decade alone, PWC predicts that up to 30% of jobs could be automated. So, what will general insurance look like in the decades to come? And will we all be out of the job by then?
Before we can turn to the future of technological advancements, we must first look at what is happening now. In recent years the scale of data available to insurers has skyrocketed, not least due to many services ‘going digital’ which has made capturing data much easier, cookies are no longer just something sold at the bakery. A plethora of smart devices are now also on the market, everything from phones to home security systems to toasters, which can all tell companies a lot about their users. In fact, the World Economic Forum estimates that there will be up to one trillion connected devices by 2025.
Using data in insurance is nothing new. Insurers price based on risk, for which data is vital, how likely is it that a home will be burgled, that a traveller will need overseas medical attention, that a driver will cause a collision? But the scale of data now available has meant insurers can use it in new ways. They can better understand their customers, develop and personalise their products and integrate data with new technologies, such as Artificial Intelligence (AI). AI and related technologies are already allowing insurers to automate some tasks, such as completing paperwork and assisting customers who are having difficulty filling out forms. This has freed up time, meaning insurers can dedicate more resource to dealing with more complicated cases.
There are a number of developments in the pipeline which will allow AI to assist in complex ways. For example, programmes are being developed for insurance claims lawyers which can assess the validity of claims by comparing reports to data from similar claims that were approved. This will benefit customers by reducing the time that claims take to be processed, what would have taken days could soon take minutes! AI will likely touch every point of the insurance distribution chain, from underwriting to claims to fraud prevention. It will drive better decision-making and streamline business processes.
However, data use also comes with unique and complex risks, especially in terms of data security. The risk of data breaches is well known to insurers, in fact, many themselves offer cyber insurance as a product. Hence, infrastructure to store and maintain data must be designed to meet new needs. Insurers must have rigorous data security procedures, keeping on top of best practice by performing regular checks and updates. This is especially crucial when considering the sensitive nature of data that insurers are likely to handle, including customer location and health information.
Crucially, insurers must remember that some customers may feel uncomfortable sharing data. Research presents mixed consumer views about the use of data in insurance. Some papers show that consumers feel positive and would happily share their data if it meant lower prices, although this is often paired with the concern of data security. Other papers point to consumers feeling more sceptical. In general, those with lower knowledge levels about the use of data feel more negative than those with higher knowledge levels. So, insurers must not underestimate the power of proactive, targeted and clear communication with their customers.
That being said, it is not just consumers who are interested in the use of data in general insurance, regulators and politicians are also paying close attention. In February, the FCA and the Bank of England published the final report of the AI Public Private Forum, which details how AI is changing UK financial markets. Consumer Duty too will play an important part in the future of data in general insurance. The recent introduction of Principle 12 will codify, amongst others, new rules on consumer communication. Government is also keen to act. We have already seen the publication of the Data Protection and Digital Information Bill.
At this point, I imagine alarm bells are ringing for some readers as they envisage being replaced by a computer, but don’t worry too much yet. Insurance protects the key parts of our lives: our homes, our cars and our businesses to name a few. I believe that empathy, perception and instinct are vital for good decision-making at all levels, distinctly human traits. Hence, the future of insurance will be accelerated by both humans and AI.
Overall, the use of data in businesses of all kinds is here to stay, so now is the time for insurers to do the groundwork in defining how it will be used.
These topics and more will be discussed further at the ABI Annual Conference 2023.