Using AI to drive transformation in P&C market
The property and casualty (P&C) insurance industry has dramatically changed over the past few years due to macro events such as digitization, the pandemic, climate change impacts, and inflation. Pandemic-related claims cost all insurers $44 billion in 2020 and 2021, causing many to exclude this coverage from policies. In 2023, despite a 9.9% growth in net earned premiums, the U.S. P&C industry reported a $21.2 billion underwriting loss due to extreme weather events.
C-suite leaders and strategists are considering how to mitigate the impacts of growing risks, which markets to exit or reprice due to outsized claims, and how to maintain relevance with new consumer demographics and behaviors. For example, newer generations prefer texting and messaging with agents to holding face-to-face meetings.
Agents use digital tools, data, and analytics to serve customers wherever they are. However, many agents still struggle with customer acquisition and retention due to prospects’ price sensitivity, the time it takes to educate them about policies and coverage, and the panoply of market options available. Customer acquisition costs (CAC), which averaged around $900+ per customer pre-pandemic, continue to grow steadily. In addition, retention rates hover around 84%, meaning insurers continually need to find new customers to compensate for attrition.
By modernizing data, P&C insurers can understand which areas of their business need further investment and which are over-resourced, strengthening their ability to allocate proper budget to innovation, growth, and operational initiatives. Insurers are building on cloud infrastructure and data modernization investments by extending automation, predictive analytics, and next-generation risk management tools throughout their business. These new capabilities should help P&C insurers strengthen return on equity (ROE), which dipped to sub-5% levels in 2023. While ROE is expected to increase to near double digits in 2024, primarily due to premium increases, analytical insights will be critical to protect it in any market condition.
The 3 key pillars that will drive transformation in this industry segment through the lens of data and AI are customer acquisition, improved retention, and exceptional claims management.
Pillar 1: Conquering customer acquisition costs with better insights
Insurers use multiple strategies to win customers, including building robust customer personas, marketing and advertising across channels, participating in digital marketplaces and partnerships, using referral programs, and implementing effective sales funnels. However, historically, it has been challenging to determine the effectiveness of channel use and campaigns. In addition, customer behavior is changing constantly.
With data abundant and getting cheaper by the day, advanced analytics can provide a detailed SWOT (strengths, weaknesses, opportunities, and threats) analysis of different approaches, enabling marketing teams to determine which are most effective and double down on the churn strategies and tactics. Scoping the customer life cycle to factor in the impact of demographics, life stages, changing channel use, and other key variables on decision-making enables both live and virtual agents to leverage a 360-degree view of the customer to guide conversations, providing prospects and customers with expert consultation and recommending the right-product-right-customer.
Pillar 2: The best RX for retention – an exceptional CX
P&C insurers and agents equally focus on retaining customers, who expect an exceptional experience throughout the policy lifecycle and may shop around for better terms and prices. They want personalized marketing and service; omnichannel support; and a seamless experience from onboarding, through policy management, and claims. As insurers know, it costs 7-9X more to add new customers than to retain them, so improving retention has an exponential impact on enhancing margins.
In addition, customers often add insurance as they move through life, so losing them prematurely means missing out on multiple multi-year product sales, such as auto, homeowner’s, liability, and life insurance. That’s why McKinsey has found that CX P&C leaders outperformed their peers by 65% over five years.So, how are P&C leaders building a great CX? Many insurers are investing in AI-led chatbots and automation to streamline lifecycle processes, from gathering information from prospects about insurance needs to processing claims. Customers want claims to be resolved swiftly, so providing them with self-service access to integrated workflow, documentation, and claims status, as well as digital payments, can go a long way to increasing their satisfaction. In addition, automation and digital workflow can help insurers do more with less, reducing spending on adjusters, processors, and customer service staff. When repeated flawlessly, leveraging data to digitize business process management appropriately becomes a virtuous cycle delivering exceptional CX.
Pillar 3: Strengthen claims management to reduce grievances
Strengthening claims management with advanced analytics, AI, machine learning and OCR technologies provides gains across multiple business areas.
Excelling at the CX: By providing a better CX, P&C insurers retain customers who might otherwise flee. An Accenture survey found that poor claims experiences can risk up to $170 billion of insurance premiums globally over five years. One in three (31%) of claimants were unsatisfied with their home and auto-insurance claims-handling experience, citing settlement speed issues and the closing processes as top pain points and increasing their risk of attrition.
Rooting out fraud: Data and analytics can also help P&C insurers root out fraud, which costs the industry $45 billion annually in the U.S. alone. These capabilities can help detect false statements, doctored documents and imagery, repeat claimants, and other signals of likely fraud. Reducing claims management costs: when combined with technologies like OCR, in-house LLM models can predict more accurate outcomes and significantly reduce costs. For example, using Gen-AI can streamline documentation input, integration, and reviews. Drone imagery, coupled with artificial intelligence and machine learning models can help adjusters make better decisions and enhance insurers’ predictive capabilities. With a better understanding of historical data and emerging risk factors, insurers can decide where to expand, reduce, or withdraw coverage in key markets or reprice policies.
Offering competitive premiums: With data-driven, automated, lower-cost claims processes, insurers can offer competitive premiums, attracting more customers. The industry is moving ever closer to its vision of zero-touch claims. Today, 80% of claims use traditional workflows mediated by humans, and 20% leverage automation and business rules. However, by 2030, experts expect that 70% of claims will be automated and only 30% will require human oversight. Some of these cost savings can and should be returned to consumers.
Leverage the ‘data lens’ to drive more value for your business
P&C insurance is a data-driven business, but many insights have remained tantalizingly out of reach to leaders and teams for decades. With the modernization of data, analytics, and artificial intelligence, teams now have new tools and processes that they can use to transform customer lifecycle processes, from winning new customers to delivering an exceptional CX and strengthening claims management. For an industry built around managing the unpredictable, being able to control more outcomes and deliver better ROE is a winning accomplishment.
