The insurance industry continues to evolve, undergoing significant transformations driven by advancements in data analytics, artificial intelligence, and macroeconomic factors, such as the growing impact of climate change. Actuarial science is also evolving as the insurance landscape becomes more complex. Actuarial departments increasingly must integrate advanced data-driven tools, models, and new technologies to provide accurate risk assessments while addressing emerging risks.
Two well-known insurance industry experts, Heather Blevins, CPCU, and Nick Lamparelli, share their insights on how the adoption of AI, IoT, and data-driven tools is transforming actuarial practices and the broader insurance industry. Blevins is the Content Programming Lead at JS Held, a recent transition for her following a 20+ year career at State Farm. Lamparelli is a Managing Partner at Insurance Nerds and has held several analytical and growth positions in the industry.
The increasing use of predictive analytics in claims management, the growing relevance of usage-based insurance (UBI), and the global threats of changing weather patterns mean insurers and their actuaries must navigate these challenges by leveraging technology to continue to be successful in a changing insurance environment.
WaterStreet: How are predictive analytics being used to streamline the claims process and what benefits does this technology offer to insurers and policyholders?
Heather Blevins: (above) “The benefits of predictive analytics in the claims process are incalculable to insurers and policyholders. As someone who worked in claims for many years, handling things manually, reviewing countless paper and electronic claims file notes, pictures, and documentation, I can tell you I would have appreciated being able to realize the advantages of claim summaries created by artificial intelligence and dashboards that unravel the mysteries of the documents I spent hours poring over.
“If I would have had those types of technologies, I cannot even begin to express how much I would have appreciated dedicating more of my time to connecting with the customer in the claims process, helping them to navigate the unexpected, and wrapping up their claim more rapidly. Predictive analytics used to create customized dashboards help so much in the faster diagnosis of claim outcomes and present the best solution for the claims adjuster to reconcile and analyze the claim. And as the accuracy of claim outcomes increases, claim costs will reduce, which impacts the bottom line for customers- premium price. I am a big fan of anything that reduces rote, mundane task processing out of the claims process, and frees claim adjusters time up to better engage in the experience they deliver through the claims process to customers.”
WaterStreet: How has the role of data evolved in the insurance industry over the past few years, and what do you see as the most significant change driven by data?
Nick Lamparelli: (above) “Data and digital transformation has been much slower in insurance than in many other industries. I hear complaints about the ease of buying items on Amazon or that cars, houses, and other consumer products can easily be purchased online, and that the insurance industry needs to catch up. It took a while, but we are now seeing the data revolution take hold in insurance.
“Many of the startup carriers/MGAs are digital native organizations that are taking a data-first approach to their businesses. So, it is not so foreign now to be able to “get a quote” within minutes. This is due to data, its breadth, and the speed at which we can get it, and use it. This trend is likely just starting. More complex exposures will soon get the same treatment. What used to take weeks or months to underwrite may well get done in days or hours.”
WaterStreet: How is the evolution of technology in claims processing affecting customer satisfaction and engagement?
Blevins: “Insurance carriers are at the ‘moment of judgment’ when customers experience a claim. In the throes of the claims process is the moment when the product customers buy becomes a reality — a tangible thing versus the promise that is sold in the policy contract. Today, insurance carriers are judged by the same standards that are established by tech giants like Apple, Microsoft, Google, and Amazon. These technology companies have changed societal expectations of just about every business in existence, and insurance is not immune to that shift in how people perceive any product they purchase.
“Insurance carriers are expected to offer the same nano-second speed of service, customer interaction models, and ease of use within the claims process as the tech firms deliver with their products. The reality is insurance carriers sell something that is VERY different than tech companies, but we have to consider in the industry how we engage with customers in the process of a claim and take advantage of the speed and efficiencies gained through technological innovations in the claims process.”
WaterStreet: What are some innovative ways that insurers are using data to enhance their risk management and actuarial strategies and what’s coming next?
Lamparelli: “The availability of precision data is increasing at a faster rate. We now have access to ground elevation data with 1–5-meter resolution whereas 7 years ago, the best we could get was 10-30 meters. We now can get access to driving data, such as speed, acceleration, braking, and other parameters we could only dream about a generation ago. With this new paradigm of data, we can create new models for underwriting, build new products, and match the level of risk an insurance buyer poses to a premium that is fairer to all the parties involved.”
WaterStreet: Looking forward, how do you see artificial intelligence (AI) and the Internet of Things (IoT) further transforming claims management practices in the insurance industry?
Blevins: “AI and IOT are game changers in claims management practices. IOT devices, like wearables and sensors gather real-time data about insured assets or individuals, and AI can be utilized to assess the data deliverables out of IOT devices to better understand what might have happened in the process of a claim.
“Think about the world of connected cars and homes. Many vehicles on the road today that are less than 5 years old have the capabilities to deliver a complete reconstruction of an accident or what was happening in the vehicle at the time of the accident. Some can even provide a 360-degree video of exactly what is going on around the vehicle at the time of the accident!
“Imagine a world in claims where a claims adjuster has not just the statement or words of an individual involved in an accident, but a video reconstructing exactly what happened! Game-changing as it’s not about one person’s word against another, and tireless canvassing of an area talking to witnesses to find out what happened. The adjuster is placed in the driver’s seat because of IOT.
“AI can be utilized to detect fraud in claims efficiently. NerdWallet estimates that fraud costs consumers an additional $400-$700 per year in premiums, and the industry around $300 million a year. We don’t talk about that enough in explaining insurance premium costs to consumers, but what if AI was able to eliminate even a fraction of those fraud costs? AI algorithms can analyze vast amounts of data to identify patterns indicative of fraud, such as inconsistencies in claim details or unusual behavior patterns, and they can do it in microseconds. What if we could reduce premium costs by even 25% through utilizing AI to detect fraud? What would that mean to consumer accessibility and affordability of insurance? Again… game changing.”
WaterStreet: How are emerging issues, like climate change risks, UBI, and technology solutions, impacting the risk and insurance landscape? How can insurers prepare for change?
Lamparelli: “The interesting aspect about the technological evolution that is taking place is that we could see it coming from miles away. Insurance is one of the last industries where technology is forcing innovation. We saw it in most other industries years ago. Buyers have been used to Amazon-like experiences for decades now and have wondered why they can’t get that same sort of experience in insurance. What we will continue to see is this digital evolution expand to solve issues like insuring properties exposed to extreme climate hazards.
“We can underwrite property by property and provide a better and faster experience for insurance buyers exposed to climate risks. Data from sensors will allow insurers to coach drivers to improve by instructing them when they are being too aggressive (or not aggressive enough). Sensors will also allow property writers to reduce and mitigate losses. We now are seeing water sensors and smart water devices that can turn off a plumbing system if it detects a leak. This means that small leaks that ultimately turn into large losses should be minimized, bringing down loss costs and thus premiums.
“Insurers are likely to need to partner with insurtech or MGAs that can execute better in this environment than they can. Some carriers may need to create specialty programs with MGAs or bring in MGUs to execute the carrier’s business model in-house. Other carriers will work with and partner with insurtechs to try delivering these new business models to the market.”
WaterStreet: How has the adoption of usage-based insurance (UBI) models impacted claims processes in the insurance industry, and what are the most significant changes you’ve observed?
Blevins: “UBI is the model of insurance in the future, and those who are leveraging the impacts of it today are ahead of the game. Consumers often are frustrated with us in insurance, namely today because their expectations have changed in the services and products they buy as I mentioned before. But they are also frustrated with us because we don’t offer them a product that is truly reflective of their personal risk factors. We do offer them a product that is generalized to the risk characteristics they present, but those algorithms are difficult to understand and are not transparent.
“UBI makes that risk algorithm controllable by the insured, and they can directly see the benefits of reducing their risk, through the interface of reduced premiums for adopting less risky driving behavior. Through the claims process, UBI has brought about positive changes including an ability to better understand the risk presented in the moment due to the capture of the real-time data analytics of driver behavior at the time of the accident.
“UBI data provides valuable insights into the circumstances surrounding an accident, such as the speed at the time of impact or the severity of the collision. This information can streamline the claims process and allow insurers to better meet those customer expectations that are set by the tech giants. In the end, UBI is reducing accident frequency because policyholders who are aware their driving habits can directly impact their premiums are more likely to drive cautiously, leading to fewer accidents and claims.”
WaterStreet: How can insurers better leverage data analytics to refine their pricing models and improve accuracy in risk assessment?
Lamparelli: “Data and analytics will allow insurers to both increase precision and accuracy. Gone will be the days when insurers file rating structures based on geographic boundaries such as zip codes. With better data comes better analytics, and we will be able to provide individual insurance buyers pricing specific to their risk in relation to the portfolio that is being assembled. Insurers will be able to better communicate this risk to their reinsurers, and the economics of the industry will dramatically improve, which will benefit insurers, but society as well.”
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