There is a new wave of technological innovation facing the insurance industry. Artificial intelligence is on the path to broad adoption and has the ability to revolutionize companies who embrace it and inhibit those that don’t. While the fundamental characteristics of the industry will remain unchanged, the course and means of which we do business are radically changing and The Travelers Companies must adopt and implement new technology in order to deal with these disruptions.
ABOUT OUR COMPANY
The Travelers Companies, a Fortune 100 company, is the second largest casualty and personal insurer in the United States. The company employees over 30,000 employers and is separated into the following business groups:
• Business Insurance: The companies largest and most profitable business segment, it provides casualty and property insurance to business from sole proprietorships to Fortune 100 corporations.
• Financial and Professional Insurance: Provides individuals and corporations with surety from professional liability, management liability, and crime coverage.
• Personal Insurance: The companies second most profitable business segment, it provides property and casualty insurance to individuals in the form of automobile, homeowners, umbrella, condominium, identity, and other individual insurances.
More specifically, each business group is sub-structured into 3 divisions which help the unit conduct business
1. Underwriting: Reviews requests for insurance and determines whether the company is willing to take on the risk. If the company choose to move forward with the client, this division determines the cost of the insurance based on the numerous risk factors associated.
2. Operations: Our largest sector, operations is in charge of conducting the “back office” duties of the company including accounting, legal, and human resources. This division is also charged with the important role of dealing with reinsurers (companies which we wish to sell our risk to/insure us).
3. Claims Department: In charge of receiving and conducting investigations on claims and making the appropriate payouts. The claims department interacts with the customer during all stages of a reported loss.
Despite being one of the top 5 personal and casualty insurers in the United States, The Travelers Companies is unranked and does not have a strong international presence.
INDUSTRY OVERVIEW & COMPANY PERFORMANCE
2017 was one of the most catastrophic years for casualty insurers due to events such as the California wildfires and hurricanes. U.S Property and casualty insurers lost $5.1 billion in premiums in 2017. The Travelers Companies saw their net income drop -31.79% as a result of the national catastrophes. Despite the disasters, a lot of insurance firms had significant re-insurance (sold their liabilities to other firms) and still lost money due to the enormous overhead and administrative costs associated with processing the claims.
Insurers realized that aside from cutting expenses, adding more business was one clear way too alleviate Wall Street’s income growth concerns. The industry looked to the younger client base who don’t purchase insurance as often. Deloitte conducted a study and found that the % of younger adults who purchased insurance went up 20% as the process became more automated. Young adults are frustrated at the amount of time it takes to purchase insurance products.
In the past year, our revenue has declined by over 30%. The decline has mainly been due to an increase in operating expenses related to our claims processing and company overhead.
This has led numerous companies to start experimenting with artificial intelligence and robotic process automation. Mundane tasks as well as policy administration, claims, and underwriting can be handled by computers freeing up thousands of people hours. Software engineering can teach computers how to “mimic the way humans interact” in order to have bots make decisions that were previously made by time consuming humans. (Deloitte).
Lemonade Insurance, a New York based casualty and property insurer, has created a 100% automated insurance platform that underwrites, talks to customers, and handles claims. They hold the world record for the fastest claim being payed out – under 1 second.
ARTIFICIAL INTELLIGENCE AND ROBOTIC PROCESS AUTOMATION
Artificial intelligence and robotic process automation (RPA) is when computers perform tasks that are typically performed by humans (ex. autonomous driving, decision making). Allstate’s VP recently went on record stating that blockchain, an element of artificial intelligence, had the ability to “revolutionize underwriting”. His company was one of the few that managed the ride the 2017 casualty storm and had their income rise of 60% in the past year. Revenue however, only rose slightly as the majority of the gains were from lower expenses – some of which was attributed to artificial intelligence.
AI works very well with insurance systems since their underlying processes are frequent, repetitive, and rules-based (Accenture). When AI is properly implemented, it leads to flexible and scalable solutions which can cut routine processes out of employees workday and increase the utilization of various departments.
Artificial Intelligence takes 4 common forms in the insurance industry:
1. Integrated Desktop
o The consolidation of data
2. Robotic Process Automation
o Having bots edit current models to complete a process
3. Digital Assistants
o Human-like bots which mimic human interactions. They are able to answer questions and make business decisions
4. Machine Learning
o Having computers gain knowledge from experiences and use that information to make better decisions in the future
The Travelers Companies is the only top 5 U.S. property and casualty insurer which has yet to implement artificial intelligence into their insurance processes. This has led to notable decreases in net profit during times of high claims as opposed to competitors such as Allstate who have heavy AI capabilities.
STRATEGY/IMPLEMENTATION
Artificial intelligence can help The Travelers Companies in the following areas:
1. Underwriting and Behavioral Economics
i. Problem: Underwriting is primarily “gathering information from multiple sources in order to asses the risk associated with any given policy”. (Medium). This process can often take weeks.
ii. Processes which task can benefit from: Integrated desktop, Robotic Process Automation, Digital Assistants, Machine Learning
iii. Solution: Have bots ask potential customers relevant questions based and request necessary data based on their personal inputs. Have computers gather relevant information about the potential insured. For example, for renters insurance, have computers generate the # of miles a building is from a fire station. Using that information, have computers calculate models to determine the premium while also taking into account the different users in the past with similar data.
2. Claims Handling and Audit’
i. Problem: There are numerous parties involved with claims (ie. Claims handlers, loss adjusters, re-insurers, fraud detection
ii. Processes which task can benefit from: Integrated desktop, robotic process automation, machine learning
iii. Solution: Institute artificial intelligence for the handling of claims. Computers can validate data from multiple sources and parties and deliver custom reports to those that need it. It can automatically approve and payout claims which it determines to be low risk and those which fall under pre-approved limits.
3. Administrative Tasks and Policy Administration
i. Problem: There are often discrepancies in policy premiums and other mundane tasks/problems which require human intervention. Re-insurers often want customized reports which take up an immense amount of human time.
ii. Processes which task can benefit from: Integrated desktop, Robotic Process automation
iii. Solution: Institute artificial intelligence to automatically instigate policy premium investigations and handle re-insurers. This can be done by creating innovative intelligence software and putting the tech on a blockchain computer system to insure security and privacy of the information.
RISKS/CONTER-ARGUMENTS
• Employee Layoff & Public Relations Risk: Automation of manual processes has the ability to portray negatively upon employers since it will lead to layoffs and difficulty retaining top talent
o “Smart technology enables smart people”. By employing the proper technological processes and removing mundane and routine tasks, employees will be able to focus their times on harder and more impactful tasks. This will not only benefit The Travelers Companies, but also the personal development of employees.
• Failing Software Risk: Since AI is very scalable, errors will be magnified and will have a larger negative impact
o While anything scalable has further downside, this risk can be mitigated by testing the software through comprehensive simulations. Using AI custom data simulators a d historical data, we have the tools to simulate years of insurance risk so that when technology is implemented – it already has “years of experience” working in the real world.