As we welcome the new year, it is natural to reflect on the past year and look ahead, to the challenges and opportunities that lie ahead, and in particular to how new technologies can impact the insurance industry. As always, we must separate the signal from the noise.
For many, artificial intelligence is an eternal buzzword, but, ironically, it appears that this technology is still largely in its infancy in the insurance industry, especially in home insurance. Both regulators and insurers understandably face challenges caused by models’ lack of explainability, which poses challenges for the widespread use of AI to directly assess and price homeowner insurance risks in the near future.
Instead, the main technological innovations in homeowner insurance in the coming year are likely to be solutions and tools designed to improve data intake and processing in a way that positively impacts the consumer experience throughout their home ownership journey. These technologies, which provide access to better data, will help ensure more accurate pricing, wider adoption with built-in insurance, an improved claims process, and more.
Pricing accuracy has long lagged behind market conditions by a year or more, which could lead to underinsured homeowners. The impact of this delay is even more pronounced during periods of inflation. The simple heuristics used by carriers probably cannot accurately explain the complexity of rising labor and material costs.
Some insurance companies have wisely focused on technologies that enable more flexible and complex pricing, developing technologies that support rate changes orders of magnitude more frequent than the industry average. Together with continuous underwriting and integrated policy management, we believe that such technologies will have a significant advantage, as similar market dynamics are likely to continue into the new year.
Inline insurance is often regarded as the holy grail. Typically, incorporating insurance directly into the developer, lender, and title company processes provides a win-win situation by offering customers a superior digital closure experience and expanding the reach of the participating carrier. However, due to the complex requirements of home insurance, getting this right can be a challenge for all but the most advanced insurance companies.
With carriers always looking to expand distribution, it’s likely that we’ll see significant progress in 2023 through truly built-in insurance offerings. As third-party data sources become more sophisticated, more API-enabled smart carriers will be able to get home data directly to deliver faster, more accurate pricing and a must-have experience through the partner process.
Access to better data will also play a key role for many homeowners when considering claims. Hurricane Ian is a great example of how aerial photography can affect claims processing. The proliferation of drones should allow adjusters to reach hardest-hit areas faster than they could by car or on foot, as well as provide more opportunities for damage assessment, which could lead to faster claims processing, payments and repairs.
The claims process is also likely to benefit from greater adoption of automation technology. Companies that can extend the claims processing lifecycle with technology can help limit data entry errors, provide people with relevant historical claims data instantly, and should be able to build models that can help identify properties that may be susceptible to damage even before filing a claim. .
As with most industries, the digital transformation taking place in the insurance industry is fueled by access to better, more granular data. While some companies have successfully introduced AI into customer service and ways to make people more efficient, it is unlikely that AI will become a common and widespread tool used for risk assessment and home insurance costing in the near future. More immediate advances insurtech are likely to be driven by greater flexibility and responsiveness to changing market conditions, the creation of superior digital experiences that will satisfy customers wherever they are, and the introduction of automation technologies that will positively impact customer service.
