Instructional Module 3 for course, Developing Technology Foresight: Case Study of AI in InsurTech

McShane, Michael

Pinto, C. Ariel

English

Tahami, Hesamoddin

Fakhravar, Hengameh

Old Dominion University

Old Dominion University ODU Digital Commons Developing Technology Foresight: Case Study of AI in InsurTech Open Course Materials 2022 Module 3: Technology Foresight and InsurTech Michael McShane Old Dominion University C. Ariel Pinto Old Dominion University Follow this and additional works at: https://digitalcommons.odu.edu/oer_developingtechnologyforesight  Part of the Artificial Intelligence and Robotics Commons, and the Insurance Commons Repository Citation McShane, Michael and Pinto, C. Ariel, "Module 3: Technology Foresight and InsurTech" (2022). Developing Technology Foresight: Case Study of AI in InsurTech. 2. https://digitalcommons.odu.edu/oer_developingtechnologyforesight/2 This Modules is brought to you for free and open access by the Open Course Materials at ODU Digital Commons. It has been accepted for inclusion in Developing Technology Foresight: Case Study of AI in InsurTech by an authorized administrator of ODU Digital Commons. For more information, please contact digitalcommons@odu.edu. Developing Technology Foresight: Case Study of Artificial Intelligence (AI) in InsurTech Module 3Introduction to Technology Foresight and InsurTechAcknowledgementsThis material was made possible through a grant from theSpencer Educational Foundation. Students interested inpursuing a career in Risk Management and Insurance may beeligible to apply for a Spencer Scholarship. To learn more,visit: www.spencered.org.Module 3 ObjectivesModule 3 Learning Outcomes: Upon completion of Module 3, students will be able to identify emergingtechnologies to address the needs of the Insurance Industry. In particular:1. Identify current needs of InsurTech in the modeling, analysis, and managementof risk2. Map functionalities of various emerging technologies to these current needs ofInsurTechTopics in Module 31. Technology gaps & trends in InsurTech1. InsurTech Case StudiesIce breakerWhat’s the best piece of advice you’ve ever been given?What is your favorite item you’ve bought this year?What is your absolute dream job?3.1. Technology gaps & trends in InsurTech• IoT in Insurance industry• Blockchain in Insurance industry• Cloud Computing in Insurance industry• Insurtech and the Rise of Parametric InsuranceWhat is the difference between  parametric insurance and traditional (indemnity) insurance?• Traditional (indemnity) insurance is triggered by an actual loss of thepolicyholder. Indemnity means to put you back into the same positionas before the loss, not into a better position.• Parametric insurance is triggered by an event that is not directly a lossof the policyholder but is expected to be correlated with the loss.• Parametric insurance is based on external trigger correlated to the loss,not on actual loss of policyholder as for indemnity insurance.What is the difference between  parametric insurance and traditional (indemnity) insurance? (cont.)• Payout might not match loss. This is known as “basis risk” for buyer of thisinsurance. Parametric insurance has basis risk whereas indemnity insurancedoes not.• Parametric insurance has less moral hazard risk than indemnity insurancebecause policyholder cannot affect the trigger for parametric insurance. Inother words, a parametric insurer has less worry about moral hazard by thepolicyholder than a traditional (indemnity) insurer.• Parametric insurance can pay very quickly when triggered compared toindemnity insurance. So don’t need adjuster to determine payment.What are advantages and disadvantages of parametric vs indemnity insurance?• Unlike for traditional insurance, parametric insurance has basis risk for the policyholder, whichmeans the policyholder might receive more or less than the actual loss.• Parametric insurance does not have any moral hazard risk for the insurer because thepolicyholder has no control over the loss. Traditional insurance does have moral hazard riskfor the insurer because the policyholder has control over the loss, meaning the policyholdermight be less careful about trying to prevent losses or have losses on purpose because thepolicyholder knows the insurer will pay.• Parametric insurance can pay out almost immediately because the amount of payment to thepolicyholder depends on an external trigger that the policyholder has no control over. Unlikefor traditional insurance, no claims adjuster is needed to determine the amount of loss or ifthere is any fraud by the policyholder related to the loss.What are examples of Insurtech being used to make parametric insurance possible?Example 1: Flight Delay Insurance DApp Powered by Etherisc: 2:40• https://www.youtube.com/watch?v=LCRkFifVcIc• Flight Delay is a first decentralized application that provides insurance against flight delays or cancellations.• The application is fully licensed, regulated, and operates on a public blockchain.• If your flight is delayed by 45 minutes or more, the payout can be received immediately after the landing.• Enter the amount you want to pay as a premium. You can then see the estimated payouts for respective delays.What are examples of Insurtech being used to make parametric insurance possible? (cont.)Example 2: #ITC2018: Chris Sheehan, Co-Founder and CEO, WorldCover 4:08 https://www.youtube.com/watch?v=mpZWeF31W3k&list=PL-rBgTpIQXAu3GqeUGeSDuTMml27u5emJ&index=18• What is main problem for 500 million people around the world, especially farmers? Lack of rainfall.• What does Worldcover do? Sells drought Insurance to small farmers in emerging markets.• What triggers payment and determines how much a policyholder (farmer) will get? Trigger for payment is if rainfall in area is less than a certain threshold. The amount below the threshold determines how much the farmer will get.• What does Worldcover use to monitor rain? Satellite data and remote sensing.• What has Worldcover eliminated in the way it does this? Fraud (moral hazard) and adverse selection. And has eliminated adjusters so can pay out fast. 3.2. InsurTech Case Studies• Pricing and Underwriting Case Study• Quote, bind issues• Policy administration and central systems• claims and settlementsPricing and Underwriting Case Study• Click to go to this Willis Towers Watson Quarter Insurtech Briefing website, go to thebottom of the page, download the “Quarterly Insurtech Briefing Q1 2019” pdfdocument, then answer these questions related to the document:1. What is an important current challenge for insurance pricing and underwritingdepartments?1. What has the emergence of data aggregators brought together for the insuranceindustry?1. What has the InsurTech company HazardHub to provide insurers a more actionableand accurate approach to risk pricing?Pricing and Underwriting Case Study (cont.)4. What insurance area has the Internet of Things (IoT) played a substantial role in andwhere in the insurance industry was this first manifested materially?5. In marine insurance, how is IoT being used and what type of products is beingenabled?6. What space does InsurTech company Concirrus provide marine and motor(re)insurers with and what does this allow them to better understand?Pricing and Underwriting Case Study (cont..)7. What does InsurTech company Root take further, what does it combine it with, howdoes it make use of the smartphone, and what does this facilitate?8. What are implications for the broader insurance pool itself due to all theimprovements and changes in the pricing and underwriting arena allowed byInsurtech?9. What have advances in deep learning and machine learning made possible?Quote, bind issues Case Study • Click to go to this Willis Towers Watson Quarter Insurtech Briefing website, go to thebottom of the page, download the “Quarterly Insurtech Briefing Q2 2019” pdfdocument, then answer these questions related to the document:1. what is the role of UK-based company Direct Line in evolving the quoting process?2. How technology helps insurers to improve their quoting process?3. How does InsurTech company Simply Business used technology to facilitate quote,bind, issue process for its customers?4. What does InsurTech company Bindable take further, how does it make use oftechnology, and what does this facilitate?5. What is the innovation of InsurTech company Confused.com and what does it offer toits customer?Policy administration and central systems Case Study • Click to go to this Willis Towers Watson Quarter Insurtech Briefing website, go to the bottom of thepage, download the “Quarterly Insurtech Briefing Q3 2019” pdf document, then answer thesequestions related to the document:1. what do we mean by policy administration and central management systems? whatare the components of it? how technology can improve the functionality ofcomponents?1. How does InsurTech company BriteCore used technology in their policyadministration system to its customers experience?1. What does InsurTech company RiskGenius take further, how does it make use oftechnology, and what does this facilitate?1. What is the innovation of InsurTech company ProNavigator and what does it offer toits customer?claims and settlements Case Study Spixii, founded in 2016, designs white-labeled automated solutions for insuranceunderwriting, customer service and claim processes. Spixii’s differentiator lies in theinsurance-specific nature of its integrated chatbots, which are designed to collect andvalidate structured data necessary to make business decisions. Currently supportingclients in Europe for Property and Casualty, and Life and Health, Spixii utilizes itsexpertise to analyze the behavioral insights of the user to:• 1. Provide an experience to the user that is tailored to the user’s specific needs• 2. Enable insurers to make better business decisions based on factual dataclaims and settlements Case Study (cont.) The Spixii claim solution includes an insurance-focused chatbot, which streamlines the claimprocess from notification to settlement. The user, or claimant, receives a superior experience asthere is 24/7 access to the tool, as well as a content management system for uploading photoand video evidence such as CCTV or dash cam recordings. Spixii is also able to tailor theconversation held with its chatbots based on the user type: Brokers will receive a differentexperience to that of a first-time personal claimant. Enabling incremental optimization of thecustomer journey, the claim team can make informed business decisions thanks to theknowledge gained from verbatim feedback and net promoter score calculations and from theadvanced reporting techniques, including behavioral insights and analytics leveraging machinelearning algorithms. All of this serves to bolster the user’s engagement and sentiment toward theinsurance company and ensure that the insurer receives the pertinent and relevant information.Module 3- Highlights• Picture of Module 3Module 3 Review Questions1. Explain parametric insurance. Define the difference between parametric insurance and traditional (indemnity) insurance.2. Choose one of the InsureTech case studies and explain how the company use Artificial Intelligence to improve  its services to customers?

Module 3: Technology Foresight and InsurTech

https://digitalcommons.odu.edu/cgi/viewcontent.cgi?article=1002&context=oer_developingtechnologyforesight

Module 3: Technology Foresight and InsurTech

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