Despite tech breakthroughs, no revolutionary insurance product — yet

By Doug Bailey

After a two-decade-plus career in technology management for insurance companies, Garrett Droege says the “wow factor” is gone; he’s no longer awed by advancements in modern systems and glitzy computer programs.

“I’m not seeing anything that I would call a revolutionary product,” says Droege, a senior vice president and director of innovation and digital risk practice leader at IMA Financial Group, a Denver-based company specializing in global insurance and risk and wealth management.

Yet, in the same conversation, Droege ticks off a list of technological breakthroughs: artificial intelligence algorithms, computer-enhanced optimization features and digital asset blockchain systems — that would cause the less inured among us to shake our heads in disbelief.

He sees a world where “smart insurance contracts” can:

• Automatically pay out claims without policyholders having to go through the trouble of filing.

• Let high-tech autos independently assess accident damage, instantly assign blame and submit claims.

• Use an AI interface that can work behind the scenes and log in to the insurance carrier that writes the applicable policy, and then log in to the agency management system that shares the data — all with a single human voice command.

“You won’t need another username or login,” he said. “You won’t need to go through another six-week tutorial period on how to use this thing. It will just work. And so that’s actually what I think AI is going to be really good at doing.”

Talks with insurance executives, consultants and industry engineers about what’s currently hot in technology all eventually lead to AI, or generative AI, which is indeed poised to revolutionize the practice. Inherent though in these discussions is the obvious evidence the entire insurance industry — with the reputation as a stodgy paper-and-pencil business not known for welcoming modernization or computerized solutions — is undergoing an enormous transformation brought on by advances in technology.

Pandemic drove major change

Driving this change, of course, is the invasion of insurtech upstarts as well as the need to become more competitive, cut expenses and be more consumer friendly. But most responsible for the sudden embrace of high tech was the pandemic.

“Technology has advanced quite a bit over the last three years, and a lot of that has been driven by COVID,” said Bryan Davis, executive vice president and head of VIU by HUB, a Chicago-based digital insurance platform. “I mean, the industry went digital overnight. So, whether it’s cloud computing or how much data that I can process in an easy manner, it literally grew exponentially because of COVID-19.”

This forced migration to the cloud and the digital world has given rise to enormous innovation in how agents work with their carriers, customers interact with their companies, and businesses partner with insurers. Davis says the migration is nearly complete, but it has created a “people problem.”

“Phase 1 of getting from ‘on-prem’ [on premises legacy computer systems] to the cloud has happened,” he said. “Now we’re in this ‘phase 2,’ in which you have human capital with new capabilities who you don’t know what to do with, right? You got the same people that before could look at 30 accounts a day and now can do 300. You don’t need all those people. That’s where the industry is now.”

VIU by Hub specializes in “embedded insurance,” providing insurance solutions for banks, mortgage companies and others that can offer policies to customers without the consumers ever having to interface with a traditional insurance company.

“A lot of what we’re doing in embedded insurance wasn’t able to be done three years ago because the technology wasn’t there — the latency connections, all of that stuff would have been really subpar,” said Davis. “So that’s why three to five years ago, embedded insurance didn’t take off like people thought it would. Now it’s enabled a lot more with the advancements in digital technology.”

“The COVID-19 pandemic resulted in investors steering more than $12 billion into HR tech-related software and platforms in 2021, with much of the investment growth being in core HR and employee benefits functionality and integrated platforms for midsize organizations,” said Dan Johnson, chief technology officer at Guardian. “As of 2021, 8 in 10 employers reported that their HR and benefits processes were more digital than paper-based, and many have experienced efficiency gains and improved user experiences.”

AI plays a leading role

AI has already revolutionized the insurance industry by expediting legacy business processes such as claims processing and customer service. And more is on the way.

“From an industry perspective, API [application programming interface] integration has catapulted the industry further, especially when it comes to HR and benefits technology,” said Johnson. “While AI has enormous potential for improving the consumer experience and making our business and teams more efficient, APIs are significantly advancing the HR and benefits processes into more digital experiences and positively impacting consumer satisfaction.”

Johnson says if companies want to stay relevant and competitive, they must adopt APIs in their operations.

“The next frontier in consumer experience is omnichannel — making real-time, fragmented interactions seamless,” he said.

Technology is offering companies the chance to reduce turnaround, improve customer satisfaction and enhance operational efficiency.

“Generative AI, especially in HR and billing, has gained traction due to its ability to automate tasks like document generation and data entry,” said Vince Cole, CEO of Ontellus, the nation’s largest procurer of claims-related data services. “It offers the promise of streamlining back-office processes, ultimately cutting costs and increasing productivity.”

Cole and others, though, say the systems aren’t fully up to their potential and humans are still needed to validate AI-generated output, which can be prone to what the programmers call “hallucinations,” or simply made-up data.

“Relying solely on AI in critical processes without proper checks can lead to costly errors and compliance issues,” he said.

And while transforming the industry, sometimes technological advances are doing so in ways many had not predicted.

“Investments in chatbots and AI-first experiences haven’t been as lucrative as expected because, at the end of the day, people still want to talk to a human agent,” said Megan Dixon, vice president of data science at Assurance IQ, a Prudential Financial subsidiary. “We see this firsthand. The vast majority of our customers still opt to speak with an agent before buying all types of insurance, from health insurance to life insurance and homeowners insurance. Chatbots simply can’t provide the context, confidence and empathy that human agents can.”

But that may be because the technology is still in its infancy. Other executives mention beta tests they’ve seen of conversations with AI systems that are indistinguishable from human interaction.

Some of the areas seeing change

Many aspects of the insurance business are being impacted by AI and other innovative technologies.

Underwriting: Digital shifts have allowed the industry to transition from the cumbersome world of paperwork to offering instant policies, ensuring that insurance becomes more user-friendly and accessible than ever before. “These technologies have supercharged the underwriting processes, making it possible to transition from weeks-long waiting periods to near-instantaneous decisions,” said Gregg Barrett, CEO of Waterstreet Company. “Automated systems are now equipped to swiftly analyze, provide critical fraud detection mechanisms, and guarantee that payouts are both timely and just.” Many carriers are using AI and predictive models to offer online quotes or even quotes and binding through an app.

Claims: Automation is making a big impact on the claims process. “Many carriers are investing in creating a claims system that will make automatic determinations on liability and injury payments and even alert adjusters to coverage questions,” said Nathan Weller, who analyzes the insurance industry for FitSmallBusiness.com. “I worked bodily injury claims at two different carriers and was able to see firsthand the technology improve in a matter of years from being a place to track your work to entering the information about the claim and the system generating a ranged amount to offer for injury settlements.”

Migration to the cloud: “Cloud infrastructure provides the foundation for digital agility and scalability,” said Luca Russignan, head of insurance at Capgemini Research Institute for Financial Services. “Transitioning core functions to the cloud is increasing steadily across the industry. While data security concerns remain, the benefits of flexibility, resilience and cost reduction outweigh the risks.”

Fraud and risk assessment and prevention: The industry is using AI and the network of connected devices (the internet of things, IoT) for risk prevention.

“Two key factors driving this shift are the availability of real-time data and artificial intelligence tools,” said Shanal Aggarwal, cheif compliance officer at TechAhead, a mobile app development and digital transformation service company based in India. “The use of IoT sensors and AI allows insurers to predict and prevent adverse events in real time. For example, connected buildings can self-report risks and request repairs based on data received from IoT sensors and AI analysis.”

Such systems are also being used to anticipate and manage issues like wildfires, floods and climate change. Another exciting yet complex frontier for insurtech is the rise of wearables and drones. “These tools promise a world where real-time data can be harnessed to offer highly personalized and precise insurance premiums,” said Barrett.

Digital twin technology takes this a step further by creating virtual replicas of insured assets. “This empowers insurers to simulate scenarios and continuously monitor risks, leading to superior underwriting and claims management,” he said. “Though [the technology is] nascent, early adopters are already achieving substantial gains.”

Droege mentions a client that sells blockchain, or “smart insurance contracts,” to farmers; the technology monitors sophisticated weather and climate conditions and automatically pays out claims for weather-related damages. “All we need is a weather-monitoring station — we’ve got the GPS coordinates of the farm, and we have a verified third-party trusted data source that will tell us what amount of rain fell in a 24-hour period,” he said. “If the numbers fall within the policy’s amount, it pays automatically — there’s no need to file a claim or go through an adjuster.”

Telematics: Usage-based data from cars and smartphones is changing both underwriting and claims. Companies can pull data from a smartphone to determine exactly where the vehicle was and even = the date and time of an accident down to the second. “I’ve handled claims where coverage came down to the time stamp in the app related to the loss,” said Weller. “At the same time, newer cars with sensors and 360-degree cameras, like Tesla, have completely changed claims investigations, as they can provide data on speed [and] location and even a visual of the entire loss.”

Telemedicine: Insurance companies are building or adopting telemedicine solutions to enhance access to health care services and improve medical care efficiency. With features such as live video consultations, secure messaging, e-prescriptions and health record integration, the systems offer an efficient and convenient alternative to traditional in-person medical care. “[With] the COVID-19 pandemic, telemedicine has experienced unprecedented growth, transforming health care delivery worldwide,” said Aggarwal.

With AI features, more higher-risk applicants looking for life insurance now have the ability to apply without having to submit to a medical examination and having their medical records reviewed. “While this type of underwriting method has been available for years to those in good to perfect health, people with chronic illnesses like diabetes are seeing certain life insurance carriers offer this type of application process,” said Matt Schmidt, CEO of Diabetes Life Solutions. “Insurance companies are using background reports such as the [Medical Information Bureau} and Milliman IntelliScript, credit reports to gather enough information that they can make approvals for certain applicants.”

“The day in the life of someone working in insurance is filled with tasks that could be — and slowly are being — automated,” said Weller. “Looking into the future, the trend continues to move toward automation and generative AI having a greater role in assisting the adjuster and in risk assessment and underwriting. I know it sounds like fiction and not fact, but the most interesting trend to focus on will be claims where AI is determining liability for an accident involving self-driving cars. In the long term — and maybe not that far out — that will be the future of insurance.”