3 key 2022 trends for AI and P&C insurance

From the ongoing effects of COVID to unprecedented wildfires, 2021 was chock-full of headaches for P&C insurers. And it looks like 2022 will continue to be just as hectic — if not more so.

P&C insurance has undergone a massive transformation over the last couple of years, and insurers have done tremendously well in many cases to adapt as quickly as possible to these changing market conditions.

The opportunity now in front of insurers, especially the traditional giants, involves focusing on the operational efficiency and customer experience standards needed to compete with more agile upstarts, especially in the face of evolving expectations and changing consumer motivations. Insurers are starting to accelerate their push towards embracing AI as a way to make front-office experience, middle office management and back office operations much more scalable and sophisticated.

With that in mind, here are three key AI trends that are set to dominate the insurance industry in 2022.

1. Wriggling away from on-premise

To say that the insurance industry has undergone a major digital makeover during the last couple of years would be a massive understatement. However, while insurers have made significant strides in digitizing many parts of their operations, they continue to face hurdles in achieving transformative progress, especially in underwriting, claims and agency management, mainly due to their outdated technology infrastructure.

Part of this is also because of the regulated nature of the industry, which has prevented carriers from simply and easily reimagining front-end functions. 2022 is likely to be a pivotal year for accelerated movement towards the cloud for a few reasons.

First, as AI initiatives are starting to go past testing and into deep production, Machine Learning Ops or more generally Model Ops has become a critical need, and cloud providers have made available comprehensive services to drive a continuous and automated training pipeline, model deployment and governance, and automated monitoring of model performance.

Second, the promise of significant cost efficiency, reduced latency and access to powerful and explainable AI frameworks as a combination is now coming alive with increasing maturity of cloud offerings.

Third, with rapidly increasing focus on carbon footprint and sustainability, including policy makers’ directives towards net-zero emissions, cloud offers the opportunity to push towards carbon neutrality. So expect a bevy of insurers to realize profit and loss value from their AI initiatives on the cloud in 2022.

2. Creating value from new sources of data

This year will see newer sources of data, including unstructured data, become a significant differentiating source of insight for insurers with increasing ease of storage, access and processing of documents, voice recordings, interaction transcripts (emails, chats, calls), images, behavioral data and Internet of Things (IOT) data — think telematics, wearables, smart devices and so on.

The advances in document digitization and Optical Character Recognition (OCR) technologies, conversational AI along with computer vision and natural language processing (NLP) offers considerable hope to bring alive the promise of these new sources of data. While Insurers are already doing a lot with unstructured data, the applications have largely been restricted to specific use cases in motor claims processing (accident images), automation in underwriting (document digitization), claims severity and litigation (adjuster notes). Insurers are starting to leverage the power of new sources of data to design new products and services, simplify distribution, improve fraud management especially in emerging areas such as cyber risk, reduce customer effort and reimagine business models. This will become mainstream in the coming year.

3. Winning the war for talent

AI can deliver huge gains for P&C insurers today. However, in order for these tools and strategies to take effect, insurers need to have the talent to put them in place — something that has become increasingly challenging to do. A U.S. Bureau of Labor Statistics report projects that STEM jobs are likely to grow at 8% by 2029, more than double the average growth for all occupations. By 2025, there are set to be 2 million unfilled STEM jobs — many of which are in AI.

This means that insurers face incredible competition to prize talent away from new age tech companies and other large corporations. Moreover, given how pricey acquiring this talent can be, it likely is not sustainable over the long term. Therefore, if insurers are committed to bolstering their AI capabilities, they need to find ways to cultivate AI talent directly or partner with trustworthy third parties in order to get access to the knowledge and skills capital they need to make their AI efforts a success.

The year ahead is set to be one of the headiest years for the insurance industry yet. However, through continuous dedication to digital transformation, insurers can find ways to not just adopt AI but use it in a way that drives incredible value for their business.

Sankar Narayanan is chief practice officer for Fractal Analytics. These opinions are the author’s own.

See also:

• Preventive measures are the future of insurance
• Five risks to consider when implementing AI in health care
• AI and the push to end insurance ratings bias