How AI could change insurance

• The insurance industry is believed to be among those with the highest potential value from AI technologies, which could add a potential $1.1trn annually.
  
•  AI technologies will allow insurers to draw on larger datasets to improve their processes, from automating customer support to honing risk modeling and predictions.
•  Data-driven assets and AI could transform claims management, including prevention, notification, settlements, and fraud detection.
•  Along with the opportunities offered by GenAI come risks around data protection, confidentiality, the threat of cyber-attack, ethical concerns, and liability exposures. 

The numbers are staggering. ChatGPT amassed 100 million users in its first two months [1], only for that record to be smashed a few months later by rival Threads, with 100 million users in just five days [2].

It took TikTok roughly nine months to reach that number of users and Instagram two and a half years, but the uptake of ChatGPT after it launched in November 2022 was unprecedented. The speed of its adoption prompted a wave of speculation in the media and business world about the disruptive potential of such technology.

With digitalization increasing rapidly in many areas of life, the amount of data that can be leveraged is proliferating. As a data-driven industry, insurance is not new to artificial intelligence (AI) or using data analytics across its value chain to improve products, interactions, prevention, claims and processes. According to several studies, the industry is among those with the highest value potential from AI. 

Estimates point to the market potential of generative AI (GenAI) reaching $15bn by 2025 and $32bn by 2027 in the insurance and finance industries alone. McKinsey foresees AI technologies could add up to $1.1trn [3] in potential annual value for the global insurance industry.

Put simply, there are two types of AI application. The first uses AI’s ability to identify patterns in data and draw conclusions or make predictions from them. The second, GenAI, uses large language models (LLMs) trained on vast existing datasets to generate new content that mimics human creativity, whether it is images, text, coding, music, art, or interactive simulations.

“AI enables insurers to enhance their value proposition by better predicting and therefore preventing risks,” says Michael Bruch, Global Head of Risk Consulting Advisory Services, Allianz Commercial. “AI depends on having good-quality data. We are constantly evolving and expanding our data quality across the business at Allianz – not only at Allianz Commercial, but across all Allianz entities – to train the models we use. This can help us assess and model extreme weather events, for example, gathering data on secondary perils such as floods. Or, by constantly improving the granularity of our location data, we can help corporate customers better identify climate-risk exposures.”

AI can take on the role of “cool problem solver,” adds Bruch. “By enabling us to adopt a more predictive, preventive, and proactive approach, AI can shift our perspective from looking behind us in the rear-view mirror, and paying out claims, to evolving into an organization with a sharper view of the road ahead, supporting clients in preventing and mitigating risk, and avoiding losses. The power of AI-generated insights can help businesses and societies become more resilient.”

As more data and risk intelligence becomes available, particularly for weather or cyber exposures, AI could enable insurers to provide coverage for emerging risks and technologies that are not yet insurable today, including parametric solutions. 

The potential of GenAI across the insurance value chain is an exciting prospect. Open AI’s ChatGPT hit the headlines first, but it has now been joined by Microsoft’s Co-Pilot and Google’s Bard as the most prominent tools in the market.

“The new technology means insurers will be able to draw on larger datasets to improve their processes, from automating customer support and manual tasks to honing risk modeling and predictions. It will also facilitate data entry, data cleansing and the classification of data,” says Meenesh Mistry, Business Model Transformation Executive at Allianz Commercial.

A wider range of risk data will enable underwriters to offer more targeted, bespoke insurance solutions and smarter pricing. GenAI will also automate underwriting tasks, including data extraction and wording comparison.

“In corporate insurance, customers provide detailed risk information and questionnaires that can exceed 100 pages,” explains Ulrich Kadow, Head of Global Product Management and Underwriting Transformation at Allianz Commercial. “Using AI, key information could be extracted and clearly displayed to the underwriter and risk consultant, leaving more time for the ultimate risk assessment. Similarly, broker wordings can be compared against an Allianz master product wording, with GenAI highlighting key differences. By streamlining tasks like these, underwriters can focus on more complex challenges.” 

Larger datasets will also provide more scope for GenAI to pick up anomalies or unusual patterns of behavior that could indicate fraud, says Kadow. Loss triggers could be spotted, and future claims could be better predicted, including claims surges. GenAI’s ability to analyze images and videos could be another useful tool in the claims process. 

Investments by Allianz in IT totaled $5.7bn globally in 2022, a significant portion of which was dedicated to AI technologies. At Allianz Commercial, a GenAI exploration program has been set up in partnership with Allianz Consulting and Microsoft to investigate a number of use cases globally, including an internal application that offers all the functionalities of public LLMs but is safe and secure to use. These use cases are being tracked across the Allianz Group, to identify synergy potential across different entities and share learnings.

Example use cases at Allianz Commercial include training intelligent chatbots to answer queries about risk appetite and underwriting, 24/7, in multiple languages on multiple channels, and using GenAI to summarize key exposures and generate content using cited sources and databases for enhanced risk assessment.

Allianz plans to roll out GenAI-enabled business software in due course and all employees are being encouraged to experiment and learn how to apply this new technology at work. The company actively supports its employees to become fit for AI. Its Fit4IT and security awareness initiatives aim to boost employees’ digital skillset, and more than 7,000 employees have participated in training offered by an internal Data Analytics Academy.