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Untapped Potential of Artificial Intelligence

Smart technologies, artificial intelligence (AI) and machine learning are all on the agenda for insurers. But how intelligent are the systems really?

Google, Amazon or Facebook have led the way, and data is the currency of the future. This is particularly true for insurers, because, if you know your customers’ behavior and life situation, you can price risks more accurately, minimize fraud and better meet customer expectations. Because processes are data-intensive and driven by repetition, many customer inquiries, damage reports or data analyses could theoretically be standardized and automated — ideal prerequisites for using intelligent machines.

Nevertheless, the insurance industry is one of the few industries that has barely arrived in the 21st century. Paper-based processes and outdated IT systems with incompatible interfaces are the rule rather than the exception. For this reason, according to a study by the strategy consultancy Bain, companies have so far concentrated on using smart algorithms to make individual sales processes more efficient or to provide more targeted information.

According to Bain, the greatest potential slumbers in downstream areas: The property and casualty (P&C) insurers alone could increase premium income by almost 25% and reduce costs by almost 30% through consistent digitalization. The greatest savings are possible in claims settlement and acquisition costs.

See also: Strategist’s Guide to Artificial Intelligence

When IBM’s Deep Blue chess computer won against the then-reigning world champion Garri Kasparov more than 20 years ago, this was celebrated as historic. However, Deep Blue did not win through cognitive intelligence, but because it could calculate all conceivable moves.

Today’s AI methods, which go beyond just computing capacity and are based on algorithms that use large amounts of data to learn to carry out tasks without pre-defined rules, have so far largely failed in the insurance world. The reason: Very few insurers have an IT infrastructure that would allow customer data to be bundled over the entire contract term and all interfaces. The systems therefore do not have sufficient high-quality and correctly classified training data with which to learn the algorithms.

Instead, most companies rely on systems that obey fixed rules. For example, some providers work with chatbots to process customer inquiries faster and more automatically. Digital language assistants, which process natural language and interact directly with the customer, point in a similar direction. Whether in writing or by telephone — the basic principle is the same: Employees are relieved of routine tasks so that they have more time for those questions where personal contact is really necessary.

Nevertheless, experts agree that AI will revolutionize the insurance industry in the medium to long term. Smart algorithms will help identify insurance fraud faster and assess risks more accurately. This allows AI to be used to create personalized products. In combination with sensors and the “Internet of Things” (IoT), AI also helps to prevent fraud.

See also: And the Winner Is…Artificial Intelligence!  

Together, these many possibilities will lead to insurance products that are much more individual and fair for the collective. If insurers can refine the risk profiles of their customers on the basis of the customer’s history and behavior, they can determine whether this customer is trustworthy. The subjective decisions of individual experts would then be opposed by objective, trained systems that could not be impressed by emotions or stress.

Today, on the other hand, customers quickly end up in a drawer based on their profession or place of residence that does not correspond to their actual risk profile. Artificial intelligence could calculate trust on the basis of data and synthesize it, so to speak. Customers who are trustworthy can then benefit, for example, from lower prices or faster claims processing.

3 Ways to an Easier Digital Transformation

Across industries, digital transformation and cloud migration are forces to be reckoned with. Insurance is no exception.

As an industry accustomed to operating on legacy technology, insurers should approach the cloud migration process judiciously. But they should also know that moving all workloads to the cloud – even if incrementally – is necessary to keep up with evolving customer expectations.

The industry at large is receiving this message. Nearly 70% of insurers report they are somewhere along the journey to digitally transform their infrastructure, according to a report from Ensono and Forrester.

But the jump from mainframe to cloud shouldn’t take place overnight. By taking a methodical approach and prioritizing the right workloads, insurance technology teams can achieve a hybrid IT infrastructure that allows for improved operations at manageable costs. Here are three guidelines to follow as your insurance organization adopts a hybrid cloud strategy:

Prioritize which applications to move first

46% of insurers surveyed in the Ensono/Forrester study cited improving application performance as the most important IT change their company could make to augment customer engagement. But according to IBM, nine out of 10 of the world’s largest insurance companies still run on mainframes. Leaning on legacy technology alone makes it challenging to keep pace with application upgrades and customer expectations for speed and experience. Organizations that remain within a stand-alone legacy environment will have to rely on workarounds to keep upgrading their app performance, and these workarounds will only become more frequent and costly.

See also: Digital Transformation: How the CEO Thinks

However, moving all operations to the cloud and scaling up overnight isn’t a realistic ask of traditional insurers, either. The transition is expensive and takes months of planning and testing. Instead, insurance organizations should take things slower by prioritizing the applications that require the highest levels of performance as well as most external and third-party connectivity. The basic rule of thumb: Apps that are customer-facing should be at the top of your list.

Set yourself up with premium analytics

Quality data is central to understanding the needs of agents and customers, but legacy technology doesn’t allow for the best insights. Turning to a cloud or hybrid strategy increases an insurer’s ability to access top-notch, real-time data and analytics, as well as expand into emerging cloud offerings.

According to Ensono and Forrester, almost half of insurance decision makers use cloud platforms for advanced data analytics, and about 40% believe it’s important to expand their use of emerging cloud technologies like mobile or internet of things (IoT) and increase reliance on public cloud platforms for systems of engagement. Those systems of engagement need to connect seamless to systems of record.

Find the right partners

Data analytics clearly play a huge role in the benefits insurers can reap from a hybrid cloud strategy. But a full 100% of insurers admitted to facing data-related security issues, according to Ensono’s study. Whether this is due to outdated IT infrastructure or a lack of expertise, it’s unacceptable to put any data at risk, especially customer data.

The right partners can help keep your organization’s data secure while optimizing the right applications for cloud. Mainframes – a true foundation of the insurance business – aren’t going away in this process, but they won’t bear the whole burden any more, either. Legacy systems do have their perks, such as security and expense, but ultimately insurers need to ensure they have access to the expertise needed to help their businesses thrive in the cloud.

See also: 4 Rules for Digital Transformation

The transition to a hybrid IT environment requires re-engineered IT infrastructure, the use of real-time data and insights and the right talent – the kind that can create a flexible and competent IT strategy with a custom balance of legacy platforms and cloud environment. Partners like managed service providers (MSPs), migration services and consultants can make the process much smoother. Accessing third-party support also allows your organization to skip the stressful experience of hiring for internal tech experts in a talent economy suffering from an IT skills gap.

The push from customers for faster, better service in insurance continues. But dated infrastructure and an IT talent shortage is holding the insurance industry back. Digital transformation is the only way to achieve growing expectations, cloud migration being the core driver behind the progress. Insurers must thoughtfully design an infrastructure migration plan associated with their application strategy and seek the needed resources to help carry it out, thus ensuring a stabler as well as growing customer-backed future.