Liberty Mutual leading the way
The insurance industry is under immense stress with threats to its growth prospects looming large.1Over-regulation, technological changes, changing customer behavior and competitive pressures are driving the disruption of the traditional insurance business model. 2 How should insurers re-think their strategy for the future in an agile market that demands a customer-centric view?
We can agree that the backbone of an insurer is its ability to use predictive models to forecast future events and estimate the impact of those events, especially in pricing, sharing risks and claim loss predication. However, in today’s world, that is just a fraction of what it takes to be a leading insurer. In an industry that has lagged in customer innovation, machine learning can be that edge that separate winners from losers. The impact of machine learning can be particularly ground-breaking in the claims management process, starting from how data is used to yield higher predictive accuracy and to increase customer satisfaction during claims settlement process.3
Among the insurance companies, Liberty Mutual stands out in its application of machine learning to improve customer experience. Liberty’s innovation is spearheaded by Solaria Labs, the company’s in-house technology incubator founded in September 2015. 4
Liberty Mutual has developed two applications that leverage machine learning to improve customer experience: a crash-damage estimator application and an enhanced navigation portal that chooses your driving route based on where you are least likely to have an accident.5As an example, let say you have one of those bad days and you a reversing in an unfamiliar parking lot and in your momentarily loss of focus, you backup and hit a light pole. Suddenly you are alert, you get out of your car to preview the damage and wonder how much this would cost to fix. With Liberty Mutual application, you upload a picture and cloud-based computer analyzes the picture and estimates your repair cost. Using artificial intelligence, this application computes cost based on thousands of car crash photos.6 On the other hand, the navigation portal computes data by aggregating public data on auto theft, parking citations as well as crashes using proprietary insurance knowledge, to advise the safest driving routes and places to park in major US cities.7
Machine learning can be further leveraged to address a major cost element for the insurance industry, fraudulent claims. Fraudulent claims cost the industry more than $40billion a year. 8 This can be done by making machines learn from audits of closed claims. Machine learning is capable of computing seemingly unrelated datasets, including structured, semi structured and unstructured data, which would improve the quality of its data used to validate claims and price risks. The traditional process of claim settlement is an internal long convoluted process that requires several touch points by employees. However, machine learning can give birth to touchless claims that does not require human intervention. This would lead to reduction in claims through earlier identification of the fraud and optimal allocation of resources to manage authentic claims.
Given the dynamic role of machine learning in the insurance industry and the evolution of artificial intelligence at a rapid pace, Liberty Mutual may explore other strategies to remain ahead of the curve. In addition to its inhouse innovation team, Liberty should consider an acquisition strategy of technology companies that have solutions or strategies that aligns with its business model. Start-ups and tech innovators realize the potential applications for machine learning in the insurance industry, which has resulted in innovations that could optimize the mundane processes of insurance companies.9
The advantage of an acquisition strategy is that it allows Liberty to focus on what it does best, which is underwriting and investment activities. Also, the cultural and reward systems of a typical startup or tech innovator, which drives innovation, may not fits Liberty’s existing business model. Although, the acquisition strategy has its merits, there are concerns that needs to be addressed. This may be an expensive strategy to execute, given inflated valuations of technology companies. Also, the regulatory environment is a key considerations as disruptions from technology companies may not align with the steep requirements of the regulator.
As Liberty Mutual refines its strategy and reflects on the role of machine learning in shaping the future of insurance, it need to determine whether an in-house or an acquisition strategy would give it an edge. (721 words)
1PWC, “ Top insurance industry issues in 2018”, February 2018, https://www.pwc.com/us/en/industries/insurance/library/top-issues.html
2PWC, “ Top insurance industry issues in 2018”, February 2018, https://www.pwc.com/us/en/industries/insurance/library/top-issues.html
3Forbes, “ How AI and Machine Learning are used to transform the insurance industry”, October 24, 2017, https://www.forbes.com/sites/bernardmarr/2017/10/24/how-ai-and-machine-learning-are-used-to-transform-the-insurance-industry/
4Liberty Mutual Insurance, “ Apps That Lessen Worry: Liberty Mutual Insurance’s Solaria Labs Unveils New Developer Portal to Benefit Auto Owners”, January 04, 2017, https://www.prnewswire.com/news-releases/apps-that-lessen-worry-liberty-mutual-insurances-solaria-labs-unveils-new-developer-portal-to-benefit-auto-owners-300384202.html
5Liberty Mutual Insurance, “ Apps That Lessen Worry: Liberty Mutual Insurance’s Solaria Labs Unveils New Developer Portal to Benefit Auto Owners”, January 04, 2017, https://www.prnewswire.com/news-releases/apps-that-lessen-worry-liberty-mutual-insurances-solaria-labs-unveils-new-developer-portal-to-benefit-auto-owners-300384202.html
6Liberty Mutual Insurance, “ Apps That Lessen Worry: Liberty Mutual Insurance’s Solaria Labs Unveils New Developer Portal to Benefit Auto Owners”, January 04, 2017, https://www.prnewswire.com/news-releases/apps-that-lessen-worry-liberty-mutual-insurances-solaria-labs-unveils-new-developer-portal-to-benefit-auto-owners-300384202.html
7Liberty Mutual Insurance, “ Apps That Lessen Worry: Liberty Mutual Insurance’s Solaria Labs Unveils New Developer Portal to Benefit Auto Owners”, January 04, 2017, https://www.prnewswire.com/news-releases/apps-that-lessen-worry-liberty-mutual-insurances-solaria-labs-unveils-new-developer-portal-to-benefit-auto-owners-300384202.html
8Forbes, “ How AI and Machine Learning are used to transform the insurance industry”, October 24, 2017, https://www.forbes.com/sites/bernardmarr/2017/10/24/how-ai-and-machine-learning-are-used-to-transform-the-insurance-industry/