The AI-driven insurance |Three major changes
Dr. Evangelo Damigos; PhD | Head of Digital Futures Research Desk
- Electric Vehicles
- AI
- Risk
Publication | Update: Sep 2020
According to future thinker Peter Diamantis, and Steven Kotler, founder and executive director of the Flow Research Collective, three major changes are underway in insurance. First, by shifting the risk from the consumer to the service provider, entire categories of insurance are being eliminated. Next, crowdsurance is replacing traditional categories of health and life insurance. Finally, the rise of networks, sensors, and A.I. are rewriting the ways in which insurance is priced and sold, remaking the very nature of the industry.
Car insurance premiums, are currently calculated according to the age and history of the driver, traits of the car itself, and where the driver and that car live. But what happens over the next decade, when autonomous vehicles take to the road and change every aspect of that calculation?
Right now, human error is responsible for 90% of the 1.2 million traffic fatalities a year. Yet, without humans in the driver seat, 90% of that danger gets removed. For an insurance industry built on assessing risk, this is a huge change. Which is why the accounting firm KPMG predicts the car insurance market could shrink by an astounding 60% by 2040.
Waymo automatically provides passengers with insurance every time they step inside one of their vehicles. And it’s an assessment made from big data.
When we combine autonomous vehicle technology with smart traffic systems and sensor-embedded roads transit risks mutate. For instance, if the LIDAR sensor that’s helping steer an autonomous car goes on the blink and causes an accident, who do you blame? Not the passenger. Maybe the carmaker. Maybe the LIDAR supplier. Or, who’s fault is it if your Waymo loses its 5G connection and suddenly can’t drive? Is it Alphabet, who owns the car; Verizon, who manages the connection; or OneWeb, who owns the satellite that provides that connection? What if an autonomous vehicle gets hacked or stolen?
Setting those issues aside, the end of auto insurance as we know it is round the corner. Everything from driving speed and braking habits to radio volume and the number of other cars on the road can impact your rate. Drivers now get insured based on car usage rates (the less you drive, the less you pay), good driving trends (you consistently stay within the speed limit), and low-risk driving times (your daily commute does not take place after midnight).
This same trend is emerging into home insurance. Pricing used to be based on the state of the home at policy purchase, but 30% of all home claims are from water damage that occurs long after the policy is sold. Now insurance companies get real-time metrics using in-pipe temperature sensors and in-wall water detectors, and homeowners are notified about potential problems well before they occur. Thanks to all the data from wearables, this same shift will soon arrive in health insurance. Insurance companies will suddenly have the opportunity to prevent disease before it happens.
The term McKinsey coined to describe this kind of A.I.-driven, sensor-laden insurance is “pay-as-you-live,” morphing the traditional “detect and repair” role of an insurance company into “predict and prevent.” Your rates fluctuate with your choices in an almost entirely automated process.
In both health and life insurance, the premiums of the healthy cover the costs of the unhealthy. But if the healthy end up paying unnecessarily high premiums, they may choose to seek more fair alternatives. Which is exactly what’s happening with what is what’s known as ‘crowdsurance’. Introducing decentralized, peer-to-peer insurance, eliminates the middleman. Instead of an insurance company, there’s a technology stack — an app connected to a database connected to an A.I.-bot, that oversees a network made up of people who pay premiums and file claims which the network then approves.
According to Emerj, the artificial intelligence research company, several key insurance carriers began to experiment with AI in the last decade, including Progressive, All-State, and State Farm.
Take Lemonade, the best funded of today’s crowdsurance startups. Via an app, Lemonade brings together small groups of policyholders who pay premiums into a central “claim pool.” Artificial intelligence does the rest. The entire experience is mobile, simple, and fast. Ninety seconds to get insured, three minutes to get a claim paid, and zero paperwork. Or consider the Swiss firm Etherisc selling flight delays and cancellations cover. Travelers sign up via credit card, and if their plane is more than 45 minutes late, they’re paid instantly, automatically, and without the need for any paperwork.
By 2030, the number of staff required to process a claim will drop by 70 to 90%, while processing times will shrink from weeks to minutes.
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