Industry of Insurance Faces Transformation

In the insurance industry, a new wave of change is sweeping across the landscape as companies embrace technology to streamline operations and improve decision-making. Prudential Financial, for instance, is actively seeking out third-party AI solutions to empower its employees and agents to make faster, more informed decisions.

This shift towards technology is not a new development for the industry. The largest global insurers, many of which have been around for over a century, have traditionally been slow to change their business models or operating processes. However, the integration of new technologies, particularly AI, is proving to be a catalyst for an accelerated transformation.

One such integration is the acquisition of Palo Alto-based Next Insurance by Munich Re. This deal could pave the way for the implementation of AI tools across Munich Re's operations. Next Insurance, which specialises in commercial insurance for small businesses, boasts over 600,000 business customers and a valuation of $2.6 billion.

Another player in the Insurtech scene is the French company Alan. With a valuation of over $4 billion, Alan sells health insurance to corporate clients and covers 745,000 customers. Alan's operations are heavily reliant on AI, with 100% of employees using it weekly, and it settles 98% of customer claims within 24 hours.

The integration of AI into legacy systems is made easier by the advancements in APIs. These robust tools now enable the seamless integration of new technologies into the core systems of established insurers.

The potential cost-saving opportunities for incumbent insurers are substantial, with productivity improvements of up to 40% possible. AI can analyze vast amounts of data to more rapidly and accurately assess underwriting risks, spot fraudulent claims, and quickly settle legitimate ones.

Moreover, AI can automate billing processes, improving the customer experience by responding rapidly and intelligently to inquiries. This speed and efficiency can help to improve customer service and loyalty.

However, integrating sophisticated new tools like AI and machine learning with insurers' legacy systems and processes can be challenging. There is a risk that these changes could disrupt customer service and loyalty if not managed carefully.

Experts like James Ruotolo, senior director of Financial Services at software firm SAS, observe an uptick in acquisitions as Insurtech technologies gain a foothold and show real value in the market. SAS, a godfather of data analytics software, counts 47 of the 50 largest global insurers as customers, providing them with the necessary tools to navigate this digital transformation.

Insurtech firm Zhong An, launched in 2013, has millions of customers in China and is partnering with Sompo Japan Nipponkoa to expand into Japan. This partnership demonstrates the global reach and potential of Insurtech companies.

Despite the potential for significant productivity gains, technology has not yet been put forward as a means for global insurers to become more innovative and efficient. Alan CFO Mihaela Albu states that her company aims for profitability by the end of next year, demonstrating that Insurtech companies are not just about disruption, but about sustainable, profitable growth.

In conclusion, the insurance industry is undergoing a significant transformation, driven by the integration of AI and Insurtech. This shift promises to bring about greater efficiency, improved customer service, and innovative business models. However, the successful integration of these new technologies with legacy systems will require careful planning and execution to avoid disruptions and maintain customer loyalty.