As we welcome the new year, it’s natural to reflect on the year that passed and look ahead to the challenges and opportunities that lie ahead, and more specifically how new technologies might impact the insurance industry. As always, we must separate the signal from the noise.
For many, artificial intelligence is a perennial buzzword, but paradoxically, it appears the Technology is largely still in its infancy in the insurance industry, and especially in the home insurance space. Regulators and insurers alike are understandably grappling with challenges created by the lack of model explainability, presenting challenges for the widespread use of AI to directly evaluate and price risk for homeowners insurance in the near future.
Instead, major technological innovation in homeowners insurance in the coming year will likely come from solutions and tools designed to improve the ingestion and processing of data in ways that positively impact the consumer experience throughout their homeownership journey. These technologies that provide access to better data will help enable more accurate pricing, a wider distribution via embedded insurance, an improved claims experience, and more.
Pricing accuracy has long lagged a year or more behind market conditions, which can leave homeowners underinsured. The impact of that delay is even more pronounced during inflationary periods. Simple heuristics used by carriers likely cannot accurately account for the complexity of the rising costs of labor and materials.
Some insurtechs have smartly focused on Technology that provides more agile and sophisticated pricing, developing Technology that supports rate changes in orders of magnitude more frequent than the industry average. Together with continuous underwriting and integrated policy management, we believe such technologies will carry a significant advantage as similar market dynamics will likely continue into the new year.
Embedded insurance is often seen as a holy grail. Generally, injecting insurance directly into builder, lender, and title company processes accomplishes a win-win, offering customers a superior digital closing experience and expanding a participating carrier’s reach. Yet, due to the complex requirements of home insurance, correctly implementing this may be challenging for all but the most Tech-forward insurers.
With carriers always looking to widen distribution, it’s likely that in 2023 we will see significant progress made by truly embedded insurance offerings. With an increase in sophistication of third-party data sources, more API-smart carriers will be able to directly ingest home data to deliver a fast and more accurate quote and binding experience within a partner’s process.
Access to better data will also play a key role in the claims experience for many homeowners. Hurricane Ian is a great example of the impact that aerial imagery can have on claims processing. The proliferation of drones should allow adjusters to reach the hardest hit areas faster than they could by car or on foot, and provide a better vantage for assessing damage, which could lead to faster claims processing, payouts, and repairs.
The claims process will also likely benefit from the increasing adoption of automation technologies. Companies that can augment the claim processing lifecycle with Technology can help limit data entry errors, instantly arm humans with relevant historical claims data, and should be able to build models that can help identify properties that may be susceptible to damage even before a claim is submitted.
Like most industries, the digital transformation taking place within the insurance industry is fueled by access to higher quality and more granular data. While some companies have successfully adopted AI in customer support services and in ways to make humans more efficient, it remains unlikely AI will be a common and widespread tool used to assess risk and price home insurance in the near term. More immediate insurtech advancements will likely be driven by higher agility and responsiveness to changing market conditions, the creation of superior digital experiences that meet the customers where they are, and the adoption of automation technologies that positively impact customer service.