As a data analytics leader with over 10 years in the insurance industry, I cannot emphasize enough how critical risk assessment is for insurers. It directly impacts pricing and profitability in a major way.
However, pricing pressure from customers means insurers have little room to apply large safety margins in their risk calculations. They walk a tightrope between pricing competitively and managing risks accurately.
This pricing imperative makes it crucial for insurers to embrace digital transformation. They must harness technology to improve efficiency and boost their traditionally modest profitability.
According to McKinsey, only the top 20% of property and casualty insurers are highly profitable:
In this comprehensive guide, I‘ll explore 3 cutting-edge technologies that can enhance insurance risk assessment in 2024:
- Video chat platforms for remote site assessments
- IoT devices for real-time data collection
- AI models for data analysis and automation
I‘ll also provide actionable advice on accelerating digital transformation through partnerships.
The Growing Importance of Risk Assessment in Insurance
Accurately assessing risk is the key to survival for insurers in today‘s competitive landscape. It directly impacts the premiums they charge and their overall profitability.
However, with customers demanding better pricing, insurers walk a tightrope. They must:
- Price competitively to attract and retain customers
- Accurately account for risks to maintain profitability
This leaves little room for error in their risk calculations. Even small miscalculations could mean major financial consequences.
That‘s why insurers need to optimize their risk assessment capabilities. They must extract the maximum insight from all available data using the latest technology.
The ability to granularly assess risks enables insurers to:
- Price policies competitively
- Incentivize low-risk behavior
- Ensure adequate reserves
- Operate sustainably over the long-term
Those who fail to adapt their risk assessment practices risk falling behind.
1. Video Chat Platforms Enable Remote Site Assessments
Insurance risk assessment has traditionally relied on generic questionnaires and in-person site visits.
However, these methods have significant limitations:
- Questionnaires lack granular site-specific insights needed for accurate pricing.
- In-person visits are time-consuming and expensive across large geographically distributed portfolios.
This is where real-time video chat platforms come in. They enable remote site-specific risk assessments, providing many benefits:
Reduced Travel Time and Costs
Video chat eliminates the need for risk assessors to travel to each location in person.
This significantly reduces travel costs, which can add up quickly across a large portfolio.
As an example, Chubb uses Livegenic‘s video chat solution to reduce travel for risk assessments. This has lowered expenses and enabled them to scale assessments across Europe and Asia.
Faster Risk Assessment Turnaround
With video chat, assessors do not lose days traveling to sites. This dramatically speeds up the assessment process.
Chubb was able to reduce risk assessment turnaround time from weeks to just 4 hours by using video chat. This level of agility enables more frequent risk monitoring and dynamic pricing.
Lower Environmental Impact
Eliminating travel also minimizes greenhouse gas emissions from vehicles and flights.
This allows insurers to reduce their carbon footprint and operate more sustainably. That aligns with 68% of customers wanting insurers to prioritize environmental goals.
Mitigated Subjectivity Bias
When different assessors visit different sites, there is variability and subjectivity in scoring.
With video chat, a single centralized team can assess any site. This provides more objective and consistent ratings across an entire portfolio.
2. IoT Sensors Provide Real-Time Insights
The Internet of Things (IoT) is enabling a massive leap forward in insurance data availability.
Smart sensors embedded in homes, cars, wearables, and industrial equipment can collect real-time telemetry data.
This creates two major advantages for risk assessment:
Granular Data for Accurate Pricing
IoT provides ongoing streams of granular data about buildings, vehicles, equipment, and even customer behavior:
| Data Source | Real-time Insights |
|---|---|
| Smart home sensors | Temperature, humidity, vibration, noise, air quality, security alarms |
| Telematics devices | Vehicle location, speed, acceleration, braking, mileage |
| Wearables | Heart rate, sleep patterns, exercise, ECG |
| Industrial sensors | Machine temperature, pressure, vibration, flow rate |
This enables insurers to correlate sensor data with risk events and fine-tune their models for more accurate pricing.
For example, Fitsense uses wearable data to allow life insurers to set premiums based on real lifestyles and behaviors.
Behavior-Based Premiums
The granular insights from IoT also allow insurers to incentivize low-risk behavior through behavior-based premiums.
For example, auto insurers like Progressive offer discounts for policyholders who drive safely and minimize late-night trips. Home insurers reward smart home upgrades that reduce risk.
This converts pricing from a passive assessment to an active loss prevention tool.
The global IoT insurance market is projected to grow at a 36% CAGR to reach $237 billion by 2026, per ResearchAndMarkets.com.
3. AI Models Enable Automated Risk Analysis
Artificial intelligence allows insurers to accurately process massive datasets and automate complex risk models.
I‘ve directly worked on implementing many AI solutions during my decade in insurance analytics, including:
- Predictive analytics to forecast risk likelihood and severity.
- Computer vision for automated loss assessment and fraud detection.
- Natural language processing to extract insights from documents.
- Chatbots to instantly interview customers for risk profiles.
Let‘s explore a few high-impact AI use cases:
Automated Document Review
Insurance applications contain massive amounts of unstructured data within files like medical reports, financial records, questionnaires, claims documents, and emails.
Using optical character recognition and natural language processing, insurers can automatically extract relevant variables from documents in seconds.
This cuts manual review time from hours to minutes, accelerating underwriting and claims processing.
Customer Risk Interviews
Chatbots allow insurers to instantly interview new customers to build a risk profile. This provides a cost-effective way to gather detailed information upfront, improving risk scores.
Lemonade gathers over 1,000 data points on customers through its chatbot for precise risk assessment.
Predictive Risk Models
Advanced machine learning algorithms leverage thousands of historical risk factors to predict the likelihood and severity of future claims.
As new data comes in, the models rapidly adapt to increase forecasting accuracy.
Predictive analytics can reduce claim reserves by 5-10%, contributing directly to the bottom line.
The global AI in insurance market is projected to reach $23 billion by 2027 at a CAGR of 39%, per Mordor Intelligence.
Accelerating Digital Transformation in Insurance
Given the rapid technology advances, accelerating digital transformation is crucial for insurance incumbents.
Partnering with insurtech startups provides the fastest path to innovation. According to IBM, over 80% of incumbents have partnered with insurtechs to harness new tech.
Many insurtechs offer ready-to-deploy solutions for risk assessment, fraud detection, customer engagement, claims management, and more. Others provide an end-to-end "insurance-as-a-service" platform.
These partnerships allow incumbents to quickly integrate the latest innovations without large in-house development costs.
To learn more, see my guide on the top 7 insurtech companies to watch. You can also browse curated lists of insurance software solutions that I recommend based on hands-on experience.
The Bottom Line
Accurate risk assessment is crucial for insurance carriers to survive and thrive amid pricing pressure. Video chat, IoT, and AI technologies offer game-changing ways to enhance risk models.
By proactively partnering with insurtechs, incumbents can accelerate innovation and digital transformation.
If you need any help navigating new technologies or finding the right solutions for your insurance business, get in touch! I would love to offer my insights drawing from over 10 years of experience.
