How AI and Data Can Shape the Future of Insurance

By Amir Sohrabi, Regional Vice President for ASEAN-Korea and Head of Digital Transformation for Emerging EMEA & AP, SAS

Today, the fact that billions depend on insurers is clear, but what often goes unnoticed is the monumental challenge facing the industry. The increasing number of natural disasters has led to unprecedented losses that have driven premiums and deductibles to dizzying heights. Insurers are under fire for pulling out of high-risk markets, and on top of that the rate increases and underwriting restrictions implemented to address the growing losses may prove inadequate for long-term sustainability.

What must not be overlooked is the immense potential of AI to deliver the much-needed insights and agility that can revitalise, redefine and even future-proof the industry.

The adoption of GenAI opens up a world of new opportunities and improves consumer customisation and frictionless experiences. The development of Artificial intelligence (AI) massive language models (LLMs), has given us access to strong AI technologies that will increase these opportunities. SAS’s most recent survey reveals that 94% of APAC organisations have a dedicated budget for GenAI investment in the next financial year. To realise this potential, in the coming years, insurers will need to focus on developing trustworthy AI, backed by sound ethical standards and vigilant human oversight.

Above all, the insurance community’s top priority should be addressing these five pressing technology challenges.

1. Data quality and regulatory readiness.

Data continues to play a crucial role in driving innovation and gaining a competitive advantage in the region. In Malaysia, for example, a study commissioned by MDEC predicts that the market for big data analytics will grow tremendously in the coming months, with the banking and telecommunications sector accounting for almost a third of the market.

While there is currently a lack of clear legislation and regulation in the field of AI, don’t expect this to be the case for long. Efforts are already underway to create AI guardrails in the insurance sector. So insurers had better start preparing now for the inevitable.

As they expand their AI capabilities, they must first focus on data provenance and management. Cleansing their large data sets of errors and inconsistencies will not only improve reusability and accuracy of decision-making but also increase productivity and improve the reliability of their results. It is equally important to promote data literacy across the organisation and enable all teams to discuss, understand and adopt ethical AI practices.

2. Data governance as the cornerstone of responsible AI.

We can’t stress enough how important strong data governance is for the successful implementation of AI. A recent survey showed that the biggest concerns in this area include intellectual property issues (35%) and the misuse of customer or client data (34%). It’s clear that the use of large language models (LLMs) for business applications requires strict quality and privacy measures to ensure responsible AI practices.

For a responsible and safe use of AI, insurers need to develop a solid infrastructure and stay away from “black box” solutions that lack the necessary transparency and explainability. They should focus on integrating AI into existing systems as part of a clear business strategy with strong governance while exploring broader generative AI use cases beyond large language models. For example, synthetic data generation can improve data privacy while optimising pricing, reserving and actuarial modelling.

3. The ethical imperative of using health data for good.

According to the World Health Organisation, more than 30 % of global cancer deaths are attributable to avoidable habits. Since insurers already collect extensive health data to provide coverage, they now have the opportunity to use this data to positively impact the world and evolve from reactive indemnifiers to proactive partners for policyholders and businesses alike.

For example, insurers could use smartphone apps to offer AI-powered health coaching that provides personalised advice that improves the customer experience and reduces policy payouts. Beyond wellness, partnerships in the areas of climate change and ESG could solve solvency issues and improve the industry’s public image.

4. Balancing customer convenience and fraud prevention.

Customer expectations have changed considerably over the years. Today, they not only expect ever more individualised products and services but also that everything is “simple”, from opening a bank account to taking out insurance. But the ease with which customers sign up online also means that cybercriminals and fraudsters have it easy, and if insurers fail to effectively identify customers who are most likely to commit fraud or are fundamentally an undesirable risk, insurance premiums for customers will ultimately rise.

For a digital carrier to thrive, it must streamline customer acquisition, service, and risk management, ideally, within a cloud-based platform. Integrating the roles of actuaries, underwriters, and fraud analysts ensures that insurers handle risk appropriately, serve customers effectively, and maintain fair pricing.

5. Addressing access barriers for the uninsured population.

Unlike insuring assets such as cars or houses, life insurance is about protecting something that everyone has—life. The loss of a human life can lead to financial difficulties and plunge the bereaved into poverty. Although life insurance can help alleviate this burden, many people are still uninsured due to access barriers and historical obstacles.

This is another area where insurers have a part to play in driving positive change. With accurate data and a principled pricing framework, insurers can use digital platforms to expand their reach, educate and protect more people, potentially breaking the cycle of generational suffering. It all comes back to the data.

The human touch – still essential in insurance

The challenges facing the insurance industry are complex and interconnected. While AI and technology can provide solutions to various challenges and give traditional insurers a competitive boost, it is human ingenuity that will truly shape the future and make the most of these advancements.