Technology is the common denominator which generally creates a huge impact on almost all industries. Big data and artificial intelligence are the latest buzzwords in technology. They are impacting almost every industry. Since reinsurance is basically an industry that supports other industries, all these technological changes are impacting reinsurance as well.
In this article, we will have a closer look at how the reinsurance industry is getting impacted by underlying technological changes.
- Changing Risk Profile: The first and most important point to understand is that artificial intelligence is changing the fundamental ways in which businesses work. This is having a huge impact on insurance as well. For instance, artificial intelligence is changing the way factories are run across the world.
Earlier factory workers were mostly human. However, now it is common to find robots and drones to operate factory floors. The existence of such technologically advanced equipment creates a completely different risk profile. For instance, there is no risk that drones will become sick or disabled. However, there is a chance that the drone may cause an increase in workplace accidents causing an increase in compensation claims.
Similarly, the automobile industry is going through a sea of change. It is expected that in the next decade, artificial intelligence will enable most cars to have self-driving features. This may be a welcome change from the customers point of view. However, when it comes to the reinsurance company, this opens up a whole new can of worms.
For instance, if there is a car accident, who should be held liable? Is it the customer who was in the car? Is it the company that manufactured the car? Or is it the component provider who has developed the self-driving algorithm based on which the car operates? Right now, there is a lot of ambiguity about these issues.
The artificial intelligence industry is creating tectonic shifts in the risk assessment and risk management processes of reinsurance companies. These companies need to ensure that they act fast in order to be able to manage risks better.
- The abundance of Data: Traditionally, reinsurance companies have operated based on assumptions. This meant that if they provided coverage to 1000 people, they would assume a certain distribution of claims which would have to be paid out. This was done since there was no exact mechanism for predicting adverse outcomes and the possibility of paying out claims. However, now there are a large number of devices that can help in doing so.
For instance, it is possible to find out how much a car is driven and whether it is driven safely. Also, it is possible to obtain data about the fitness of an individual using fitness bands. Insurance companies are now facing the problem of an abundance of data.
Artificial intelligence has been responsible for creating this boom in the availability of data. It is also likely to be responsible for creating ways and means to manage it. Insurance companies have an urgent need to leverage big data technology to collate information and extract meaningful insights from the same.
- Accurate Pricing: From the points above, it is certain that the risk profile and well as the mechanism to gauge the quantum of risks are changing rapidly. Hence, it is important for the reinsurance industry to create a mechanism wherein they can price risks correctly. They need to ensure that they have cognitive models in place which can help them accurately price risk based on the most real-time data. The inability to do so could mean wrong pricing of risks which could eventually lead to the loss of customers to competitors who have a better pricing mechanism in place.
- Customer Service: Reinsurance companies are also planning to leverage the use of artificial intelligence technologies in order to improve their customer service experience.
In the recent past, many reinsurance companies have created systems that help them process mundane claims automatically, and only claims which need special attention are processed by humans. This is leading to an increase in the accuracy with which these claims are processed. It is also helping reinsurance companies to reduce turnaround times.
There are other uses for artificial intelligence as well. For instance, chatbot technology is being deployed by many reinsurance companies to automatically share documents and provide basic information about the policy.
- Lower Costs: Last but not the least, artificial intelligence technology is going to change the cost structure of the entire reinsurance industry. Right now, a lot of the work in reinsurance companies is done by humans. Going forward, this variable cost in the form of wages will be replaced by a higher technological spend. The end result will be higher upfront costs which will be followed by progressively lowering costs over the course of time. This is an important development for the reinsurance industry.
There are many places in the world where insurance customers are unhappy about exorbitant premiums. The use of technology and related cost reduction will help rationalize the premiums and increase the number of people who have access to reinsurance.
The bottom line is that artificial intelligence and big data are already impacting the reinsurance industry in a huge way. This trend is only likely to increase in the near future and reinsurance companies need to accept this trend and adapt to it as soon as possible.
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