The Future of AI in Financial Services – Insurance
Deloitte PresentationMay 2018
The latest from the World Economic Forum
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1 The Changing Insurance Landscape
2 What is AI?
4 AI in Canada
3 Role of AI in the Insurer of the Future
Agenda
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The Changing Insurance Landscape
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Five primary forces are driving change in the Canadian insurance market, causing incumbents to rethink traditional ways of doing business
Forces of Change
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Increasing Customer ExpectationsMembers increasingly expect to engage conveniently and directly with their benefits and retirement providers, often through digital channels
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Rise of Emerging TechnologiesEmerging technologies (e.g., RPA, AI, blockchain) and advanced analytics are enabling operational efficiencies, deeper customer insight, and innovative business models
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Rapidly Shifting Regulatory EnvironmentNew regulations (e.g., LICAT, IFRS 17, CRM2, pension reforms) are forcing financial institutions to invest heavily in new data, processes and systems
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Evolving Workforce CompositionAn aging population and growing share of millennials and contract workers in the workforce have resulted in shifting expectations for disability and wellness in the workplace, as well as growing demand for retirement products
2Insurance
Trends
Increased Competitive LandscapeIntroduction of new entrants such as InsurTechstart-ups and Tech incumbents capitalizing on new, lower cost business models and improved customer experiences are increasing competitive pressure on incumbents
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Emerging technology is a key accelerator and enabler of change in the insurance industry, with a few cutting-edge capabilities enabling transformation through AI
Rise of Emerging Technologies
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Machine learning trains computers to produce specified outputs (e.g., natural language processing, predictions), but unlike traditional programming does not dictate their methods of doing so; this allows it to become more accurate over time
Machine / Deep Learning
AI leverages big data, advanced analytics, machine learning, and other technology to drive insights and convert them to action, making decisions alongside or independently of humans
Artificial IntelligenceBig Data
An increasingly connected and digital world is generating unprecedented volumes of structured and unstructured customer, business, and risk data
New tools (e.g., RPA) are leveraging data to gain greater insight, allowing insurers to better understand their customers and automate processes
Advanced Analytics
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What is Artificial Intelligence?
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AI has slowly but steadily begun to affect our lives by facilitating many of our everyday tasks and activities, from scheduling meetings to driving cars
Artificial Intelligence
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Interact
Act
Understand
Artificial Intelligence Conceptually, artificial intelligence (AI) refers to computer systems able to perform tasks that traditionally require human intelligence
What is AI• Artificial Narrow Intelligence (ANI) – an AI able to
match human capabilities and ways of thinking in specified domains (e.g., chess, analytics)
• Artificial General Intelligence (AGI) – an AI matching human capabilities and ways of thinking in any domain
• AGI has not yet been achieved, but ANI is already transforming the world
There are several categories of human capability that AI developers are able to match or exceed
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Artificial intelligence programs can act, interact, and understand, powered by a foundation of machine learning algorithms that improve over time
Making Sense of Artificial Intelligence
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TextImagesSpeech
Etc.
TextImagesSpeech
Etc.
User AppWebsite RobotEtc.
Cloud Solution Firm Server
Etc.
Machine Learning Pre-trained Models
Speech / Voice Recognition
Text Analytics / Natural Language Processing
Natural Language Generation
Object Recognition
Sentiment Detection
Pattern / Anomaly Detection
Recommendation Engine
Etc.
AI Application
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AI’s enormous potential and high public profile have given rise to a few key mythsAI Myths and Misconceptions
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Myth 1: AI only automates the work that people doIn most cases, AI is used to complement human labour with machine labour
Myth 2: AI will lead to substantial job lossesAI can be used to free up capacity to complete value-added activities
Myth 3: The financial benefits of AI are far down the road83% of respondents to a Deloitte survey of AI users said their companies had achieved moderate or substantial impacts from AI projects
Myth 4: AI is only about transformational changeAlthough AI has significant transformational potential, it can also deliver a wide range of incremental benefits
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What role will AI play in the Insurer of the future?
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The World Economic Forum and Deloitte have spent the past year exploring the future of AI and automation in financial services
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1 How are existing AI capabilities changing the operating models of financial institutions?
2 Over the longer term, how will AI shift strategic priorities and competitive dynamics?
3 Where will near and longer term changes create regulatory and public policy uncertainties?
Research Questions
By working with leading incumbents…
San Francisco, USAOct. 2017
London, UKOct. 2017
Zurich, SwitzerlandNov. 2017
Hong Kong, SARNov. 2017
New York, USANov. 2017
…and with leading innovators
Through interactive workshops held in financial capitals around the world
Davos, SwitzerlandJan. 23-26, 2018
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Across the value chain, AI presents opportunities for insurers to do things differently…
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Enhance Risk Advisory
Design and Offer New ProductsDo More with Less Be Proactive and
Preventative
AI can help customers better understand their risks
AI can reinvent the product development journey
Increased efficiency frees resources and creates
opportunity
AI can allow insurers to help customers avoid risk
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What are the biggest pain points and uncertainties our customers face
throughout the insurance lifecycle?
Whether through digital or analog channels, customer advisory will be increasingly
customized and tailored to the specific needs and risk exposures customers
How can we best educate and advise our customer in a way that is scalable?
How can we best customize each product to target the exact needs of customers?
Enhance Risk Advisory…
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I n s u ra n c e A d v i c e a n d I n s u ra n c e Po l i c i e s s h o u l d b e c u s to m i ze d t h e i n d i v i d u a l …
Of customer’s surveyed said the ability to easily customize their policy and make updates post-purchase is important
86%
78%track and makechanges to policy
check coverage,typical payout forspecific events
69%buy more or adjustcurrent coverage
67%chat via call or message with anagent
63%
Customers said the most useful mobile insurance features are:
A d v i c e s h o u l d b e ava i l a b l eu b i q u i to u s l y a n d b e s e a m l e s s l y c ro s s - c h a n n e l …
AI will allow insurers to scale the ability to customize and deliver personalized advice…
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Example: Brolly – Your Personal Insurance Assistant…
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What customers and segments are insurers choosing not to target due to
cost and access restrictions?
Automated and streamlined operations allow insurers to miniaturize products and
distribution models, enabling them to reach new customers and segments which they
never could before
How can I leverage my agility to access new markets?
How do I think across the value chain to be as lean and nimble as possible?
Do More With Less…
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Car damageExternal motor mechanic
evaluates reparationtime and expenses
Manual decision aboutpayment
Insurance expertevaluates and adjusts
report
?
Car damageExternal motor mechanic
evaluates reparationtime and expenses
AI (ML) evaluates report Automated decisionabout payment
?
Car damage – Image recognition
Before:
After:
AI expands the scope of processes that can be reliably automated…
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WeChat’s latest viral hit in China: health insurance“A collaboration between Tencent and Taikang Life Insurance allows WeChat users to receive various amounts of health insurance protection”
M i c r o - C o v e ra g e : C u s t o m e rs c a n p ay o n e y u a n ( $ 0 . 1 6 ) fo r i n s u ra n c e c o ve ra g e w o r t h 1 , 0 0 0 y u a n
S o c i a l a n d M u t u a l R i s k Po o l i n g : U s e rs c a n d o n a t e t o t h e i r “ f r i e n d s c i rc l e ” w h i c h i n c re a s e s f r i e n d s ’ c o ve ra g e c a p
Example: Tencent and Taikang Life Insurance
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What is missing from current product shelves?
AI allows Insurers to rethink product shelves from the ground up. Agility in product
development can supercharge speed-to-market allowing insurers to offer dynamic
products and services
What risks go uninsured today because we can’t predict them with accuracy?
What are the unserved needs of customers?
Design and Offer New Products…
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….This creates an opportunity space for innovators to create new products and services
Source: Ovum research and FICO
expect cyber breaches to increase in the next year61%Of U.S. firms do not have Cyber
Insurance, yet…50%
Cyber Risk is an example of an under-insured risk category with little historical data, making it difficult to estimate losses and price liability coverage…
New risk categories exist where customers are underserved and products are scarce…
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How can we extend interaction points with customers?
The insurer of the future should be predictive, not reactionary. AI can let insurers play an
active role to help customers avoid risks
How can we leverage data to develop predictive tools?
What new business models that emerge from a predictive toolset?
Be Proactive and Preventative…
© Deloitte LLP and affiliated entities. 21Source: GreenMatch
1/3 of total food made for consumption
is either lost or wasted globally
….Insurers can leverage their data to deliver new services that provide mutual benefits
Food waste is a major global issue, for society as well as representing a major cost for clients and a sources of losses in commercial liability insurance…
Improve the margins of clients
Reduce losses in commercial liability insuranceUse IoT and AI to deliver reduce food waste
Example: Food Waste…
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M o n i t o r i n g r i s k s i n re a l t i m e c a n i m p ro ve i n t e r n a l o p e ra t i o n s a n d r i s k m o d e l l i n g , b u t i t a l s o c a n b e a n e w s e r v i c e o f fe r i n g
Example: Marine Insurance…
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Looking Ahead…
As Insurance becomes more personalized, consumers will enjoy better prices and coverage, however this raises challenges for those who are priced-out or excluded by algorithms→Recommendation: Regulators and Insurers should work together to identify which population segments are at-
risk and pursue opportunities to mitigate exclusion and work to design algorithms that avoid biases
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AI will push Insurance to be more connected, more real time, and more accurate, yet incumbents start from a position of disadvantage on the new battlefronts of data compared to Large Tech →Recommendation: Incumbent should expand their participation in the broader technology and data ecosystem to
establish the relationships and partnerships that will be required in the future
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Increasing use of data raises privacy concerns and dynamic policies and coverage require new regulatory and ethical frameworks→Recommendation: Insurers can help get ahead and play an active role in defining what ethical frameworks should
look like by working together with regulators, consumers, and other stakeholders
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AI in Canada
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A wide-ranging ecosystem of AI researchers, accelerators, startups, and international players has positioned this sector for rapid growth
Canada’s AI Ecosystem
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Toronto
Vancouver
Montreal
Edmonton
Startups
Research
Labs
Incubators, accelerators,
and VC
International players in Canada
Major international tech players are making significant investments in Canadian AI
World-renowned research centres are attracting top talent and international
attention
Canada’s government has made AI a key priority, supporting research and a supercluster that brings together
institutions, incumbents, and startups
Canadian companies have the opportunity to gain a global
competitive advantage through emerging AI technology
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Sun Life provides members with Ella, an interactive digital assistant, who helps them understand their benefits and provides advice
AI in Canada Case Study: Sun Life’s Ella
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Sun Life launched Ella in 2017, an interactive digital coach that helps members understand and make full use of their benefits
Ella can provide proactive advice, such as suggesting changes at major life events
Ella is available online, by mobile app, or through Google Home
Natural language processing allows Ella to interact with members much as a contact centre representative would
How they are changing the game:
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A biometric and natural language processing system in the contact centre verifies customers’ identity via voiceprint, and routes their call to the correct place
AI in Canada Case Study: Manulife
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Manulife implemented natural language processing AI in its contact centre to better identify and serve customers
The software can recognize customers’ unique biometric voiceprint, verifying their identity through a few personal details and a simple spoken phrase
The interactive AI improves customer experience by removing the need for cumbersome verification, and improves servicing efficiency by effectively collecting information
Once the customer is identified, the system understands their spoken description of their problem and routes them to the correct place
How they are changing the game:
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Insurtech accelerator Cookhouse Lab brings together incumbents and startups to collaboratively solve some of the industry’s most pressing problems
AI in Canada Case Study: Cookhouse Lab
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Toronto-based Cookhouse Lab is Canada’s only insurtech accelerator, bringing together carriers, brokers, reinsurers, startups, and other players to develop innovative solutions
In late 2017, Cookhouse launched a project to explore how AI and chatbots can improve claims notification and management
The accelerator’s highly collaborative model and focus on insurance make it a key place to watch for groundbreaking innovations
Cookhouse launched an ongoing series of POVs on chatbots in insurance, potentially foreshadowing additional efforts in this area
How they are changing the game:
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Key Takeaways
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“There’s a way to do it better – find it.” - Thomas Edison
“Even though a lot of the buzz in AI has been around large tech companies, if you look across an entire company, really any Fortune 500 company can create a lot of value with AI as well”- Andrew Ng (Founder of Google Brain)
“These technologies are not a threat, they’re more like superpowers”- Jeff Kowalski (Chief Technology Officer, Autodesk)
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Stay Connected
Read more on the role of AI in insurance, and other emerging topics, here: www.deloitte.ca/insurance
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Denizhan Uykur
Financial Services Strategy, Monitor Deloitte
Project Specialist, World Economic Forum
416-985-7087
Melissa Carruthers
Life & Health Insurance Strategy
416-453-9021