Is ‘lack of vision’ key to the AI readiness gap in the insurance industry?

The gap between insurance companies that are ready to adopt artificial intelligence and those that aren’t boils down to a lack of vision, according to an industry IT leader.

“Forward insight toward how AI can grow their business or optimize their cost is why there is a lag. I think that will be significant,” Raj Mohanty, Managing Principal, Capco, said.

Mohanty, who has nearly 30 years of experience building technology solutions within the  insurance and banking sectors, noted that insurance companies tend to lag behind other industries when it comes to adopting new technologies such as AI.

However, he believes widespread use of AI in insurance is inevitable, and the companies that are quicker to adjust will maintain a competitive advantage.

“I think these technologies were not as great before, which is why there was not enough ‘playing around’ in the past. But we are ready now… With the advent of generative AI, the game has changed. It provides the opportunity to speed up AI readiness for every company,” Mohanty said.

AI readiness gap: A lack of vision

Some experts have speculated that insurers can be slow to adopt new technologies due to the generally risk-averse nature of the industry itself. In Mohanty’s experience, however, the issue is more about insurers lacking a clear vision of how AI can benefit them — and a strategic plan for implementation, thereby leading to the AI readiness gap.

“I think the insurance industry sometimes lacks that. Even though there is an intent to do AI, even if there is a goal to go in that direction, many times, it lacks a view of ‘what does it do to our business,’” he said.

This is in addition to a general hesitancy to accept new technologies, such as occurred with the advent of electric calculators, the computer, the World Wide Web and even digital currencies such as Bitcoin.

“I always think that all new technologies or disruptions will have an impact on how we do things. Regardless of if we want it or we don’t, it will happen… Now, AI also will happen,” Mohanty said.

The true question, in his opinion, is “how quickly or how efficiently we educate ourselves.”

Competitive advantage

Companies that take advantage of AI put themselves at a competitive advantage over others, Mohanty said. This is particularly evident in P&C, where some insurers have begun leaving the market in certain states.

“In places like California and Florida, big insurance companies like State Farm were pulling out of underwriting new insurances. Now, that gives a very large opportunity to smaller companies who probably, until now, didn’t have that opportunity,” Mohanty said.

He used prominent insurtech company Lemonade as an example of successful technology implementation, noting its advantage over a more traditional provider like Allstate.

“They operate on data. They don’t operate on a legacy of 100 years of what they have been doing. So, it’s a tremendous advantage for them that, if they apply the right AI models, they would be able to underwrite new insurances in places like Florida or California and will significantly grow,” Mohanty said.

At the same time, he said it’s both a “risk and reward” for smaller, technology-forward companies. It can be a “great opportunity” for those with a good AI solution to efficiently step in and cover gaps left by more established providers. However, they still have to consider the increased risks that prompted those companies to exit the market to begin with.

Closing the AI readiness gap

Mohanty said insurance companies seeking to close the AI readiness gap should start by taking time to understand how AI can support their business model. He suggested they ask themselves:

• Why do you need an AI solution?
• What aspect of your business is inefficient or could be improved?

He also recommended companies think about the specific kind of AI technology that would best help them achieve their goals. For instance, although generative AI can be a standalone use case, companies should consider how it could work in tandem with their existing ecosystem of tools.

“That’s sometimes also very challenging. So, my recommendation would be understanding business cases, agreeing on certain high-priority use cases, then looking at your current technology ecosystem and making sense of how to create that structure where, technologically, it will be an advantage and a quick solution,” Mohanty said.

He emphasized that technology is only an enabler and cannot solve business problems on its own. However, he added that AI is the way forward for insurance companies that plan to maintain their competitive edge going forward.

“An insurance company has to really understand AI is going to make an impact in their business, where it will impact and how efficiently they can design it. If they don’t, they won’t survive in the market,” Mohanty said.

Capco is a global business and technology consultancy founded in 1998. It is headquartered in London, and has offices in multiple U.S. states.

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