AI has incredible potential across the entire insurance value chain, right from marketing to underwriting and claims management. The industry is growing at a rapid clip, expected to cross $2.5 billion by 2025. This milestone indicates a compound annual growth rate of 30.3% between 2019 and 2025. And the potential of AI goes beyond underwriting or claims approval; it could transform the sales and distribution phase of the insurance value chain as well, gaining from sophisticated AI algorithms available in the market today.
The Challenges of Traditional Distribution
In the pre-digital world, insurance customers would visit a local carrier or contact a financial planner to explore policy options. More often than not, there would be a leading carrier for a specific product or in a localized market. Based on the information the customer provided, the carrier would perform underwriting activities and share a quote.
This shift in consumer behavior prompted significant disruption in the insurance sector, one that put customers on the driver’s seat. As a result, carriers faced the following challenges:
Digitalized insurance distribution systems upended this picture. Today, nearly every carrier has an online portal that allows customers to peruse their product and service catalog, before making a decision. Research suggests that as many as 71% of customers engage in some form of digital research before buying a policy. There’s no commitment involved: if the offering seems unsatisfactory, customers can quickly navigate to another provider’s online store and look for a more effective alternative.
- A dip in customer loyalty - With a plethora of options opened up, the rate of switching increased, and loyalty levels took a significant hit.
- The criticality of brand awareness - Leadership in a specific product segment or region was no longer enough, with customers now aware of career brands previously outside their line of sight.
- Rapid market saturation - Sectors like auto and property & casualty (P&C) saw a decline in the number of new customers acquisition every year, owing primarily to market saturation.
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All of these forces makes it critical for carriers to reimagine their distribution networks and take a proactive stance. Instead of only launching an online catalog and waiting for aggregators to bring in customers, insurers need direct digital channels to drive sales. This business need for digital channels is where AI plays a massive role.