Kathmandu. Artificial intelligence (AI) could transform the insurance industry by reducing costs, changing the way insurance policies are sold, and helping insurance companies cover risks that are currently difficult to price.
According to a new report by McKinsey & Company, between 2005 and 2025, global insurance premiums increased by about 4.9 percent annually to about $8.3 trillion. Profit before tax rose at a rate of about 4.3 percent to about $580 billion.
According to McKinsey, growth in insurance revenue and cost efficiency have also outpaced other industries. Between 2005 and 2025, operating expenses as a share of income increased by 10 percent globally and 22 percent in North America.
According to the report, AI can help insurers reduce customer onboarding costs by 20% to 40% and improve agent productivity by 10% to 20%. It can also improve underwriting, claims handling, and pricing by allowing insurers to more effectively cover risks such as cyber threats, climate-related losses, and AI liabilities.
According to the report, less than 1 percent of global cyber costs are insured. That leaves a gap of about $900 billion. The safety gap for natural disasters is expected to reach $133 billion by 2025.
AI can also impact insurance distribution. Approximately 85 percent of U.S. property and casualty premiums and 95 percent of life insurance premiums are currently distributed through agents, brokers, and managers general agents.
According to McKinsey, AI experts can often compare policies, monitor renewals, and make recommendations to providers, especially for simple products. However, the firm warns that AI-related and cyber risks may be highly intertwined, making it difficult to diversify losses and determine prices.
McKinsey recommends that insurers determine whether to compete primarily with scale or specialized exporters, invest in data and technology, and transform their operating models. “Companies that see AI as a slow technology adoption risk falling behind competitors who are already using it in their business,” McKinsey said. —Agency
