Automation Set to Disrupt Insurance Industry; QIS CEO Discusses Options

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Over the coming decade, automation and other technological developments will have a major impact on the insurance industry. To flourish in this new environment, insurers must be prepared to restructure their businesses and retrain their people.

Michael Macauley, CEO of Quadrant Information Services, discusses Automation and the importance of cross-training employees.

If you have employees in-house with the brains and attitude to move your company forward, and they’re in an endangered area, retrain them now.

Last September, a new report from Forrester Research predicted that cognitive technologies such as robots, artificial intelligence, machine learning and automation will replace 7% of U.S. jobs by 2025.1 “These technologies will create jobs as well,” said Michael Macauley, CEO of Quadrant Information Services, a leading supplier of pricing analytics services to property and casualty insurance carriers. “Forrester projects new jobs equaling about 9% of the total workforce. However, they also project that 16% of current jobs will be replaced, for a total net loss of 7%.”

Macauley points out that insurance is an industry that will be hit particularly hard by automation, and notes that the process has already begun. Early last year, Fukoku Life Insurance in Japan began replacing some human insurance claims workers with an artificial intelligence-based system from IBM. According to a Fukoku press release, the new system is designed to scan records and automate the examination of a wide range of data to help the remaining human workers process claims more quickly. Fukoku said the system, which cost $1.7 million, would replace 34 human insurance claims workers, enabling the company to save $1.1 million per year in employee salaries.2

In addition to worker replacement by business process automation, some areas of the property & casualty insurance industry—most notably auto insurance—could be threatened by automation that’s designed to make life safer. Current industry guidelines project that the average driver will file a collision claim about once every 17.9 years, for a total of three to four accidents in a driver’s lifetime.3 It has been estimated, however, that self-driving vehicles—now rapidly becoming a reality—will reduce the accident rate by as much as 90%.4 Warren Buffett, CEO of Geico’s parent company, commented that “anything that makes cars safer is very pro-social, and it’s bad for the insurance industry. If there are no accidents, there’s no need for insurance.”5

Macauley notes that not all technological developments have a negative impact on insurers. According to a new report from MarketsandMarkets, the Internet of things (IoT) insurance market is expected to be worth $42.8 billion by 2022, growing at a cumulative annual growth rate of 65.9% between 2016 and 2022. The report states that the growing adoption of IoT-enabled devices in global positioning systems, built-in sensors and other detectors will increase the need for new IoT-based technologies in the insurance industry to gather data on speed, braking patterns, and other driving behavior. This, along with accelerated access to underwriting and claims management, will drive growth for automobile and transportation coverage in the IoT insurance market.6

Overall, however, the nearly universal expectation is for a steep decline in many of the kinds of jobs found in insurance today. According to a new report from McKinsey & Co., Automating the Insurance Industry, automation could leave up to 25% of the industry’s current full-time positions consolidated or replaced over the next decade. Most of that change, per McKinsey, will take place in operations. The report predicts that just 33% of the insurance industry workforce will be centered in operations within a decade, down from 46% in 2015. Automation could also leave just 10% of the workforce focused on administrative reports, down from 18% in 2015.7

This shift in staffing requirements, Macauley notes, doesn’t have to be a disaster for the industry—and it won’t be for insurers who have prepared themselves to deal with a changed landscape. Insurers—as the new McKinsey report points out—need to rethink their priorities right now and focus on revamping their operations to accommodate the technological changes driving these trends. Most important of all is retraining and redeploying the talent they currently have, and identifying critical skills to bring in-house.

Macauley said that “insurers need to realize that competition within the industry—both for business and for appropriately skilled staff—is going to increase, and it’s going to increase sharply. You may not need as many operations people now, but you will urgently need people in new business development, new products and services, PR and marketing, quality control, and customer service. If you have employees in-house with the brains and attitude to move your company forward, and they’re in an endangered area, retrain them now. It will be the best investment you could possibly make.”

About Quadrant Information Services:

Quadrant Information Services, headquartered in Pleasanton, CA, provides pricing analytics solutions for property and casualty insurance companies. Quadrant gives actuary, product development, pricing, sales and marketing personnel at its client companies—which include all major insurance carriers in the United States—the data they need to make accurate, data-driven decisions. An industry innovator since its founding in 1991, Quadrant has provided the P&C insurance field with a long series of technological advances, including InsureWatch, the industry’s first cloud-based pricing tool, which allows the user to produce unlimited combinations of reports with the click of a mouse. For more information, and to learn why Quadrant is for insurance companies that are tired of losing the right customers and winning the wrong ones, please visit http://www.quadinfo.com.

1.    “Robots, AI will replace 7% of US jobs by 2025,” Forrester, June 22, 2016. https://www.forrester.com/Robots+AI+Will+Replace+7+Of+US+Jobs+By+2025/-/E-PRE9246

2.    Brown, Justine, “AI to replace white collar workers in Japan,” CIO Dive, January 3, 2017. http://www.ciodive.com/news/ai-to-replace-white-collar-workers-in-japan/433165/

3.    Toups, Des, “How Many Times Will You Crash Your Car?”, Forbes, July 27, 2011. https://www.forbes.com/sites/moneybuilder/2011/07/27/how-many-times-will-you-crash-your-car/#32fdd34a4e62

4.    Shankland, Stephen, “How self-driving cars will cut accidents 90 percent,” CNET, August 1, 2015. https://www.cnet.com/news/how-self-driving-cars-will-cut-accidents-90-percent-q-a/

5.    “Self-driven cars will change the car insurance industry forever, say Buffett and Gates,” Overdrive, May 4, 2016. http://overdrive.in/news/self-driven-cars-will-change-the-car-insurance-industry-forever-say-buffet-and-gates/

6.    “IoT Insurance Market Worth 42.76 Billion USD by 2022,” MarketWatch, January 30, 2017. http://www.marketwatch.com/story/iot-insurance-market-worth-4276-billion-usd-by-2022-2017-01-30-62033117

7.    “How Automation Will Whack Up to 25% of Insurance Jobs,” Insurance Journal, February 1, 2017. http://www.insurancejournal.com/news/national/2016/02/01/397026.htm

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