Against the backdrop of ever-increasing AI adoption throughout diverse industries such as manufacturing, media, and retail, the UK insurance industry has been characteristically slow to take advantage.
According to a recent (Nov 2018) McKinsey survey, around 80% of cross-sector respondents are already using or piloting AI technologies, with the most value being generated in manufacturing and risk management, mainly in the AI subsets of machine learning and computer vision. Given the demonstrated value of risk management through AI, why are we not seeing this level of adoption within the UK insurance market?
Barriers to adoption
It’s not due to the applicability to the sector – there are many strong use cases including risk pricing, claims processing, customer retention, policy servicing, and even investment management.
There are a number of important factors widely cited as barriers that I do agree with, ranging from lack of AI strategy, talent shortages and commitment from senior leaders, but a recurring theme across many of the obstacles relates to data.
In my experience as a technology consultant in the insurance market, a key barrier to adoption I see on a regular basis is the availability of good quality, consistently captured data. Any investment in machine learning without having the fundamentals in place will likely not deliver the desired value. Given the combination of factors such as the insurance industry’s proclivity for analog records, the lack of data standardization (often amplified by fervent M&A activity), and regulatory hurdles with machine-driven “black box” processes, an explanation is starting to form.
A new era?
Recently, the staid image of the insurance sector is starting to peel to reveal a renewed appetite for innovation championed by new Lloyd’s CEO John Neal’s vision for technology within the Lloyd’s market, likely driven by mounting pressures from disruptors from outside the industry assessing opportunity for cost reduction through the application of technology.
As the global AI market grows at a projected compound annual growth rate of 36.6% until 2025, insurance organisations that take the time to define a strong data management foundation enabling data sources to be quickly and smoothly integrated and for data quality to be maintained will have a significant competitive advantage over those that do not due to the ease of experimentation and integration of AI technologies into business processes.
"We must be the world’s most technologically advanced marketplace that delivers outstanding value and products for our customers." - John Neal, CEO Lloyd’s