Artificial Intelligence - How Machine Learning is Transforming Underwriting

Over the last decade, several sectors of the economy adopted and implemented digital technologies to improve business connections and maximize output and efficiency. However, the insurance industry is one of the staidest sectors of the economy lagged behind in the global shift to digital technology. As such, the Young American Insurance industry was one of the last sectors to go through a digital transformation. Nevertheless, with the integration of technologies like artificial intelligence, advanced analytics, and machine learning from distribution to claims to underwriting, the age of digital insurance is here.

The insurance industry is now in a race to catch up with all the possibilities digitalization, specifically, artificial intelligence has to offer to both the insurers and the insured. Artificial intelligence - AI, is one of the key components of the digital age of insurance and this article will discuss are some of the ways AI will disrupt insurance underwriting and the future prospects it holds for insurance.

How will artificial intelligence shape insurance underwriting?

• Risk Assessment

The job of an insurance underwriter is to analyze and evaluate the potential risks involved in the process of ensuring applicants and their assets. This risk assessment is carried out based on the information provided in the application by the applicants. However, there is usually no assurance that information provided is accurate. In a situation where false information is given or the client purposely omits vital information in the application, the essence of an underwriter is invalidated as using wrong information to conduct a risk assessment is void. With the integration of natural language understanding (NLU), a subset of machine learning in the underwriting process, insurance underwriters will have access more sources of information that will reveal more information about a potential client allowing for a more effective and efficient risk assessment. These sources of information range from social media, Yelp reviews, SEC filings etc.

According to Andy Breen, Senior Vice President of Argo Digital, NLU has improved the efficiency of the risk assessment process by providing relevant information through its textual data sources. In the same vein the Chief Operating Officer of Next Insurance, Sofya Pogreb attested to the usefulness of machine learning in underwriting. In Pogreb's words, 'Being able to consume more data automatically, we will see more customization, and customers will benefit by paying for coverage they truly need.' Essentially, effective risk assessment translates to a better pricing for insurable risk which will prove itself beneficial in the long run to both the insurers and clients.

• Fraud Detection

The insurance sector is constantly plagued with stories of fraudulent claims and artificial intelligence is the solution to this issue. Machine learning algorithms can detect correlations and patterns that are likely to beat human intelligence and may go by unperceived in the evaluation process. Beyond detecting fraudulent claims, the machine algorithms also provide an assessment of the repair cost, the potential liability of the claims and control measures to combat further fraudulent filings.

About three-quarters of insurance executives believe that artificial intelligence is set to transform the insurance industry. Accordingly, several companies have begun integrating AI technology in their fraud prevention operations, one of such being Shift Technology. So far, the machine learning algorithms have processed well over 77 million claims for the French AI company with a 75% accuracy rate, a figure that is expected to increase as ML algorithms improve with usage.

Nevertheless, it is expected that the fraudsters in the industry will double up on fraudulent activities in a bid to keep up with the automation of fraud prevention. The MD of the consulting firm, Finserv Experts Limited, Areiel Wolanow, is of the opinion that humans should pay more attention to data analysis, while artificial intelligence focuses on automated detection protocols.

• Improved Efficiency

One major deficiency of a human-based system is the fact that human beings are inherently prone to errors. On the other hand, a digitalized system is much more accurate and efficient than human operations. This is exactly what artificial intelligence in insurance will do - improve the efficiency of the system. Machine learning algorithms assess and check for errors present in information on the system in a substantially shorter amount of time than it would take for a human being do the job. In addition to checking for mistakes at a time-effective rate, ML algorithms will also eliminate the need for third-party operations between the insurer and the client, effectively enhancing the insurer-insured relationship for better products and services. Basically, an error-free system means accurate information, which will see to proper information evaluation and subsequently more efficient customer service.

What is the future of the Insurance Industry with Artificial Intelligence?

Like previously mentioned, about 75% of insurance executives believe that AI is the future of the insurance sector and several companies are already on board the digital revolution. It is projected that the need for human underwriting will go down by at least 80% with the incorporation of artificial intelligence. According to Breen of Argo Digital, given time, the underwriter's job will be reduced to 'fine-tuning the entire process and intervening in cases that need higher-order decision-making.' Although the digital transformation of the insurance industry is still in the early stage and its initial impact has not been broad, when it is fully implemented, artificial intelligence will definitely disrupt the insurance industry.

This is the time for insurance companies to implement digital technologies in their operations if they hope to remain in business with their competitors in the near future. AI is a bundle of endless possibilities for the insurance sector and its potential benefits to insurance companies and its clients cannot be overstated.