There’s a reason why AI and big data analysis are popping up in every industry. With the right vision and proper utilization, the performance of a company can be drastically improved by a more informed decision-making process and ultimately, better products and services. Life insurance finds its self uniquely placed to reap the benefits of AI and big data as its modus operandi is based on assessing large quantities of highly relevant data. Yet, despite the seemingly natural fit, insurance providers, and in particular life insurers, have failed to capitalize on new technologies- to the detriment of all involved.
While “disruption” has emerged as a trendy term, with startups presenting new takes on the concept of insurance and reimagining the traditional methods of distribution, not all segments of the industry are in need of a revolution. While these startups are certainly pushing the industry to embrace technology, for life insurance and annuities they remain irrelevant. Their customers are not looking to place their family’s security in an untested startup, no matter how conceptually brilliant, policyholders want the safety and security of a company that has stood the test of time. This immunization to the startup craze has resulted in insurers neglecting new technologies and resisting the need to evolve.
Slowly, however, the industry itself has realized that there is an overall lack of innovation. A survey by Willis Towers Watson showed that 74% of respondents felt the insurance industry has failed to show leadership in digital innovation. Such statistics are not lost on life insurers executives, who are newly hungry to integrate new technologies, with big data and AI emerging as central elements in their innovative efforts.
Know Thy Customer
In an age of increased personalization from nearly every service, from Amazon’s “suggested for you” section to Facebook’s eerily accurate ad selection, the life insurance industry is lagging behind in learning the ins and outs of their customers, but not for a lack of data. Life insurance providers have all the data they need, they simply lack the tools to transform raw information into useful insights, and often they don’t even realize the potential it has.
With the right tools, insurance companies can transform seemingly trivial data, into immeasurable value, by incorporating it into their customer management systems. When properly analyzed, this data can produce an intricate picture of a policyholder – noting their lifestyle, needs, and concerns. A notification of a change of address, for example, on the surface is no more than a client update, but in reality, is far more. It can represent a substantial life change. If the original address was a 2-bedroom apartment downtown and the new one is a 4-bedroom house in the suburbs, odds are that the life situation of the policyholder has changed- and that is the perfect reason to get in touch with them and find out what their new needs are, creating a more tailored experience and better business for all.
And the benefits don’t need to stop at helping the provider create a better picture of their customer. Improving the tools that actuaries use to evaluate applicants will allow policies to be created in a fraction of the time, and with unparalleled accuracy. By ensuring that potential and current policyholders get what they need in a timely manner, providers can guarantee a high level of personalized care across the entire process.
Bigger and Better Decisions with Big Data
Actuaries, the foundation of the life insurance industry, are data scientists at heart. They build complex models to generate information about individuals and demographics in order to inform providers about what type of coverage is needed and whether certain policies make sense. Their models, however, are increasingly unable to process much of the raw data that is available to them, which has greatly impacted their accuracy. Capable of processing tens of thousands of unique data points, new big data tools are the perfect fit, helping create better policies in less time.
While improving actuarial efficiency is of tantamount importance for most insurance providers, the ability to differentiate themselves from their competition is proving increasingly critical. Enhanced data tools can accomplish this goal, with systems seamlessly turning their troves of data into treasure. With almost any event capable of impacting the value of a life-insurance policy, most data is relevant. This reality means that AI systems striving to assist companies must be highly efficient at recognizing the most crucial trends, prioritizing what information counts as vital, to adequately assist the decision-making process.
Better, more relevant information on their policyholders and market fluctuations allows providers to take a proactive stance towards policyholders, ensuring that any change in lifestyle which requires a policy adjustment are met rapidly and with little to no effort by the consumer, reducing the escalating percentage of policy lapse rates in the early years of the policy, even before the policy turns profitable!
As a whole, improved insights on their individual clients and a greater understanding of the behavior of their entire client base enables companies to provide better overall risk assessments, identifying potential future issues, and then to pursue the most profitable and sensible way forward.
Evolution, Not Disruption
The life insurance industry is not being disrupted, nor is it in particular need of disruption. Rather it is undergoing an evolution as the industry begins to discover and implement the new tools that have become available to them and adapt them to their highly specific needs. The life insurance industry has certainly experienced some difficulties the past several years, yet the concepts and methodologies that have long fueled the industry are still valid, they just need an upgrade.