By Felix Dela Klutse
December 12, 2024
The African insurance sector has long been marked by low penetration rates, limited access, and operational inefficiencies, leaving vast portions of the population underserved. Nevertheless, as technology reshapes industries across the continent, Artificial Intelligence (AI) emerges as a powerful force capable of revolutionising the way insurance is delivered and consumed. From analysing customer behaviour to detecting fraud and streamlining claims processes, AI offers solutions tailored to Africa’s unique challenges and opportunities. This article delves into how insurers can harness the potential of AI to not only improve their bottom line but also build trust, enhance inclusivity, and ensure financial security for millions of people across Africa.
It is hard to talk about the future of almost any industry without mentioning artificial intelligence (AI), and the insurance industry is no different. AI technology automates tasks that would typically be performed by humans, such as collecting information, analysing it and making inferences. AI works best when it can ingest large volumes of data. Armed with that data, insurance professionals will be looking for ways to use AI technology to make the process of customer service, fraud detection, underwriting and pricing, and sales more efficient and seamless. Seventy-nine per cent of principal agents have adopted, or plan to adopt and AI platform in the next six months when Business Day interviewed some of the insurance agents in Accra, Ghana.
The insurance sector is built on the ability to manage risk and forecast the future. While many organizations are already transforming to meet the expected demands of both regulatory requirements and consumer needs, new and emerging technologies could offer a host of potential benefits to those that are willing to embrace change. Integrating these technologies could further enable precise predictions, manage customer interactions and expand the personalised service and product lines with unprecedented accuracy and speed. So, how prepared is the insurance industry to harness the latest technologies to help shape the future?
Many successful insurance companies are riding this wave. Some are adapting their product offerings and distribution methods — think comparison sites, Internet of Things (IoT) and usage-based policies. Artificial intelligence (AI) isn’t new in insurance — existing use cases are seen across risk modeling, data forecasting, claims handling and contact centre operations, with an abundance of potential opportunities in the pipeline.
Simona Scattaglia, Global Insurance Technology Lead and Partner, KPMG in Italy, highlights the promise and wide impact, “CEOs recognize that AI and Generative AI are technologies with huge potential for their business, because they touch on so many core aspects of what insurers do.”
According to him, “AI models can simulate future scenarios, enhance the accuracy of risk estimation and drive better pricing. They can also identify false claims more effectively. There are powerful AI applications for the insurance industry, and it will likely force innovation in many areas. Yet, a reliance on legacy systems poses a challenge to innovation.”
While existing technologies provided the level of support previously required and gave stability during the global pandemic to help insurers weather macroeconomic pressures, the same systems could now be holding them back. And with several tech giants’ intent upon disrupting the insurance market, it’s clear that traditional insurance products are struggling to keep pace with emerging customer lifestyles.
By integrating AI, innovation in insurance could find another gear. For many, the journey starts with centralising data and transitioning outdated systems to cloud architectures. Aligning tech stacks and operations with the evolving needs of businesses, customers, partners, and distributors is ongoing, but the level of effort and investment are further signs that insurance products and services are ripe for innovation. However, insurance leaders should also be aware of the associated challenges and risks that accompany the technology and look at how to protect both the organization and consumer, by developing an understanding of the risk and action required to overcome these.
Leaping into the known unknown of AI
AI is evolving at pace, and there’s a lot to learn. That isn’t deterring insurers as revealed in the KPMG global tech report 2023 where 52 percent of respondents picked AI (including machine learning and GenAI) as the most important technology in helping them achieve their ambitions over the next three years. The KPMG 2023 Insurance CEO Outlook also highlights a significant degree of trust in AI with 58 percent of CEOs in insurance feeling confident about achieving returns on investment within five years.
One reason for the rapid adoption of AI is an abundance of use cases. From back office to front office, insurance functions can see potential benefits in automating claims handling, enhancing fraud detection, and optimizing agent and contact center operations. For now, these tend to be human-in-the-loop processes — with potential to fully automate.
Ilanit Adesman-Navon, Head of Insurance and Fintech at KPMG in Israel, highlights how AI can be used to guide ‘next best offer’ in more sophisticated ways. Illanit says, “AI is a step up from just prompting agents to answer queries. AI can be trained to understand sentiment, empathize with the customer situation, then guide agents to the most relevant, personalized offers — all of which could be done in real time”.
AI adoption also benefits from the ease of use and accessibility. The insurance workforce is already accustomed to using low or no code apps, so it’s not a massive leap to see them using AI to augment tasks through AI colleagues and co-pilots. For instance, AI-driven chatbots and virtual assistants are streamlining customer queries and claims processing, providing quick and CX-friendly responses 24/7.
Insurance and technology risks
Risks and challenges accompany each new technology. As a balance to AI’s huge potential, KPMG research reveals that CEOs are acutely aware of the hurdles. Ethical issues around AI decision-making and the absence of robust regulation are the most prominent concerns. KPMG’s 2023 Insurance CEO Outlook highlights that 52 percent of CEOs see these as highly challenging. And the tech report reveals that nearly two-thirds (64 percent) of respondents say that complex regulatory and tax developments have to some/greater extent made them feel less confident about investing in new technologies.
Over 72 percent of CEOs agree that AI regulation should parallel the rigor of climate commitment regulations, which have seen a steady increase in detail and volume. As Mark Longworth, Global Head of Insurance Advisory at KPMG International and Partner at KPMG in the UK, emphasizes: “A robust regulatory framework for AI is needed that’s proportional to the risks. Regulation should not stifle innovation but safeguard usage.”
Cybersecurity is another major concern for 85 percent of CEOs. Its evolving sophistication is reflected by the third of CEOs (32 percent) who are worried about increasing threats and the quarter (24 percent) who highlight vulnerable legacy systems. The KPMG global tech report also highlights that 63 percent of respondents either agree or strongly agree that improving cybersecurity and privacy will help them provide a loyalty-winning customer experience. Successful AI implementation hinges on high-quality data.
Again, the KPMG global tech report reveals that better data management and integration have been the top benefits for 42 percent of respondents. They’re aware that data quality before cloud migration is key to effective AI applications, and that clean, well-organized data is essential for AI to ensure accurate, transparent and fair decision-making. This also links back to regulation as insurers with unstructured or fragmented data will face significant challenges in meeting new legislation and building trust in the market.
Lastly, insurers face risks around failing to collaborate with InsurTechs. Embracing ecosystems and platforms can help insurers adapt to market changes and even reduce the risk market disruption. The interplay between traditional insurers and InsurTech firms is vital for fostering sector-wide innovation and expanding coverage to underserved segments. Collaboration could also help steer insurance toward a more inclusive, customer-centric, data-driven and tech-enabled future.
People are the heart of innovation
As much as technologies reshape the world, people are the true drivers of change. Creating a culture of innovation is not just equipping teams with the right tools but also inspiring them to think creatively about how to use them. As insurance companies look at how best to leverage new technologies, part of the focus should be on talent management — developing a team with the right technical capabilities while empowering existing colleagues to upskill and help the workforce adapt.
Framing AI as a colleague, rather than a new technology, may help to remove the fear associated with roles being removed. For example, an underwriting virtual assistant could handle cases at a significant pace compared to the speed of a underwriter not using AI — and with potentially even greater accuracy. Integrating these AI roles alongside human colleagues will likely enable insurance functions to better manage complex tasks and focus on delivering additional value to the business.
Innovation cannot be the domain of specialised teams alone — making it part of the organization ethos is key. In practice, this could be setting up systems where feedback loops are integral and inform continuous improvement and adaptation.
It could also mean making transparency the norm or simply asking people what they need and encouraging everyone to contribute ideas. At the very least, it’s investing in training and development that help employees understand how to apply these new technologies effectively to benefit both personal and organisational productivity. Insurance companies are already transforming their operations, exploring new technologies and in some cases leading the charge on AI.
They also know that innovation is a journey that requires ongoing effort, investment, and most importantly, a willingness to embrace change at all levels of the organisation. And beyond, to get closer to customers and build new business partnerships. While there are risks to every technology wave, the biggest risk could be missing the opportunity to shape what’s possible in insurance.
The insurance industry has always made extensive use of data and algorithms, such as in the calculation of insurance premiums, with data analytics forming an integral part of the insurance business model.
As noted in EIOPA’s report, “mathematical and statistical methods have historically been used in insurance to process personal and non-personal data in order to underwrite risks and price insurance policies, to quantify losses and to pay customers’ claims or to identify and prevent insurance fraud”.
These methods of analysis are long-established and already subject to strict supervision by financial regulators. The development of AI tools can help insurers to improve underwriting as well as to better monitor and predict risk, and thereby advise policyholders on how to reduce risk, which can in turn help reduce the frequency and severity of losses over time. For example, AI can be used to help better serve motor insurance customers. AI solutions can be used to analyse customers’ driving behaviour based on the data collected by smartphone apps or plug-in solutions.
This allows insurers to offer a range of innovative insurance products better suited to user needs, such as “pay how you drive”, which encourages and rewards responsible behaviour. Drivers who have developed bad habits will be able to benefit from personalised support (coaching) to help reduce the risk of accidents in the future. Access to data for insurers can also make a significant contribution to the common goal and public interest of improving vehicle reliability and road safety, in particular thanks to accident data and its detailed analysis (accidentology). In the area of pricing and underwriting, the use of AI can lead to enhanced risk assessments by enabling insurers to combine traditional and new data sources more efficiently and to price policies that more accurately reflect the risk.
AI-driven fraud detection solutions can tackle the problem of fraud by analysing massive amounts of data from multiple sources in order to spot possibly fraudulent claims. These tools can enable insurers to identify and flag unusual patterns, potentially helping to reduce the huge costs associated with fraud (estimated to cost insurers and their honest customers €13bn a year), as well as the level of customer premiums.
