Busy street in Berlin with people silhouetted at sunset

How to revolutionize the insurance value chain with generative AI

Prioritizing the right use cases and establishing key capabilities will promote innovation and efficiency across the value chain.


In brief

  • Usually viewed as slow adopters of technology, insurers across all lines of business are actively investing in GenAI and mobilizing dedicated teams.
  • Near- and long-term use cases of GenAI in insurance are focused on enhanced underwriting, predictive risk assessment and personalized product recommendations.
  • Dual-track approaches that balance grassroots experimentation and top-down strategies, with strong underlying governance, have emerged as a leading practice.

Global insurers contending with proliferating risks, such as climate change, natural catastrophe, cybersecurity, rising customer expectations, such as tailored coverages and personalized experiences, and profitability pressures are looking to the transformative potential of generative AI (GenAI). Though the technology is still in the early stages of development, many global insurers clearly see how it can unleash competitive disruption, create new revenue opportunities and promote operational excellence.

Some insurance carriers are moving ahead with first-generation use cases. Others are focused on building out enterprise strategies, robust governance models and delivery capabilities, before deploying too many applications. All insurers have questions about the optimal way forward, specifically how to leverage GenAI in a traditionally risk-averse industry.

Download the EY-Parthenon GenAI in insurance survey highlights

Recent research from EY-Parthenon teams outline insurers’ baseline priorities and ambitions for GenAI. Specifically, it reveals how industry decision-makers around the world view the opportunities and challenges associated with GenAI, and how they are operationalizing GenAI within their organizations. EY study also clarifies the value in taking a dual-track approach. One that promotes both rapid, bottom-up experimentation to define viable use cases for the near term and the methodical development of an enterprise-wide GenAI vision with the necessary infrastructure, governance and capabilities to execute it over the long term.

The difference between AI and GenAI

In this article, we refer to both AI and GenAI. This is deliberate and context-driven. AI is a broad term for a set of technologies that develop or simulate intelligence in machines, including by performing tasks that traditionally required human intelligence. GenAI is a subset of AI, referring to a specific category of models capable of generating new and original content, including text, images, video and music.

In recent months, the remarkable capabilities of ChatGPT and other GenAI models have captured the public imagination, creating an imperative to act and accentuating organizational challenges. We therefore use the term GenAI in the context of these near-term implications.

But AI is about more than the recent wave of GenAI models. It has been evolving for decades and the future will bring more tech breakthroughs. Recognizing this, we use the term AI in the context of companies’ longer-term strategies, business models and organizational changes.

Insurers are all-in on GenAI

Based on the EY study of 200 senior insurance decision-makers, virtually every insurer around the world is already investing or making plans to invest in GenAI.

GenAI investments
99%
Insurers already investing in GenAI (42%) or making plans to invest (57%)

Insurers are building dedicated teams, many of them with direct links to the C-suite and board. More than a quarter of GenAI leaders report to senior executives in the C-suite, including:

  • Chief information or chief technology officer: 58%
  • Chief executive officer: 12%
  • Chief strategy or innovation officer: 10%
  • Chief operating officer: 6%

Such a high degree of visibility is a promising sign for any insurer looking to deepen its culture of innovation.

Most respondents (69%) are prioritizing use cases to transform a specific part of the value chain, such as underwriting, distribution, with an emphasis on quick wins; 30% of insurers prioritize use cases that deliver near-term value as opposed to 17% who prioritize solely long-term benefit.

There are interesting differences in the priorities of P&C and life insurance carriers, both individual and group. P&C insurers are most focused on pricing and underwriting use cases, with 54% citing predictive risk assessments and 51% citing enhanced underwriting as top priorities for future GenAI investments. Specifically, insurers are applying GenAI, predictive analytics and machine learning to automate application submission and review, to proactively identify risks and generate suggested pricing. P&C carriers indicate increased customer value and limited implementation costs are the key criteria influencing its GenAI priorities. Group benefits providers are more focused on distribution and marketing, with 62% prioritizing use cases involving decision support tools for customers and employees.

Expectations for productivity, revenue and cost benefits

Insurers anticipate productivity enhancements, revenue uplift and cost savings as the primary returns on GenAI investments.

  • 82% of large insurers (with more than US$25b in direct premiums written) cite productivity gains as a primary driver for implementing GenAI
  • 65% of all insurers expect a revenue uplift of more than 10%
  • 52% of respondents anticipate cost savings of 11-20%

To realize these benefits, insurers must define the right approach to delivery. Currently, firms are experimenting with different models:

  • 59% of insurers seek top-down enterprise innovation, while 41% prefer a grassroots approach
  • 56% are using a centralized GenAI governance model, while 31% opt for a hybrid model

It’s understandable that insurers are trying different approaches to deploying and managing new technology. Over time, we expect firms that balance a clear, top-down strategic vision with grassroots experimentation will yield the best results. Such flexibility will be necessary to harness the full potential of GenAI and navigate both current and future challenges. 

1

Chapter 1

Constraints and barriers to GenAI adoption in insurance

The survey reveals five roadblocks to insurers’ success with GenAI.

Insurers face significant barriers in their pursuit of strong returns on their investments in GenAI, as EY survey made clear.

1. Regulatory ambiguity

Two-thirds of respondents cite regulatory ambiguity as the top barrier to establishing a dedicated team for GenAI, though there is large variance by line of business. Among life and annuity insurers, 89% of our respondents cite regulatory ambiguity as the greatest barrier, compared to only 39% of P&C carriers. The difference may be attributed to the EU AI Act’s framework, which defines life and health insurance providers that use AI technology as high-risk, although questions remain about how the AI Act will be enforced.

Despite the lack of clear or comprehensive rules, insurers, like their peers in other sectors, are making major investments in AI. However, lingering regulatory uncertainty may stifle investments in some specific capabilities, particularly areas with a direct impact on customer experience and pricing decisions.

The broad-based guidelines issued to date, for example President Biden’s October 2023 executive order and the EU AI Act, acknowledge the challenges associated with the evolving GenAI regulatory environment. Global insurers are also tracking the conduct-related regulations established by several authorities across the Asia-Pacific region, including in Australia, Hong Kong, Japan and Singapore. In a heavily regulated sector like insurance, it’s understandable that executives are cautious about future regulation, even as they respond to the imperative to invest in AI.

Regulation
67%
of insurance decision-makers say regulatory uncertainty is the top barrier to establishing a GenAI dedicated team.
2. Uncertain ROI models

While there are many options for deploying GenAI across the business, developing clear models for return on investment (ROI) can be challenging, according to the survey respondents. In fact, more than half indicate that uncertainty about expected ROI is a top barrier to establishing a dedicated GenAI team. The pressure to develop clear ROI models is likely linked to the urgency many executives feel to adopt GenAI quickly and at scale. Further, it’s difficult to estimate GenAI’s potential impact on loss ratio, for example through more sophisticated underwriting and more accurate pricing, and other key metrics.

ROI targets
57%
of insurance decision-makers say perception of inadequate ROI is a leading barrier to establishing a dedicated team for GenAI.

However, it’s worth noting that 53% of insurers that have implemented GenAI did so because of expected productivity gains, without necessarily factoring in tangible cost savings. Our results suggest testing and learning with initial deployments may hold the key to setting definitive ROI targets.

3. Data privacy, quality and security

GenAI will only add to the pervasive concerns about data privacy, quality and security. In fact, more than half of respondents identify such concerns as the top barrier to exploring GenAI initiatives. The most common worry is that GenAI applications will expose sensitive customer or corporate data. But many business leaders recognize that GenAI apps built on low-quality, out of date or incomplete data will lead to “garbage in, garbage out” scenarios, greatly limiting the value of GenAI. These are legitimate concerns given the longstanding data management integration challenges insurers face.
In light of these issues, some carriers, as well as companies in other sectors, have prohibited the use of publicly available GenAI tools. These bans are understandable, considering that insurers, and life and health insurers in particular, possess huge volumes of sensitive customer data and employees may be tempted to feed that data into external tools such as during GenAI experimentation. Over time, however, at least some insurers will lift the prohibition and sanction some usage within defined guardrails.

Data privacy, quality and security
57%
of insurance decision-makers say accuracy and reliability concerns are a top barrier to pursuing GenAI investment.

EY results show optimism about addressing these concerns over the long term; for instance, more than 50% of respondents indicate that their firm should establish regular monitoring, designated teams and governing bodies when implementing GenAI. Additionally, 68% of insurers expect to use closed-source large language models (LLMs) while 24% prefer open-source LLMs. Establishing trust and security in all types and sizes of LLMs – from the largest, scaled platforms to smaller, proprietary models – is a priority.

4. Integration with legacy IT systems

Integrating with existing technology and data sources is another common hurdle to GenAI adoption, particularly at companies with fragmented data infrastructures and limited analytical capabilities. Siloed systems can increase implementation costs, too. More than half of our respondents, 54%, cite cost of implementation as a challenge to GenAI adoption, and 46% indicate high energy consumption as another key barrier.

Integration challenges
57%
of insurance decision-makers indicate integration of legacy IT systems is a predominant challenge when exploring GenAI initiatives.
5. Risk of deploying in client-facing applications

The vast majority of insurers – 95% in the survey – are prioritizing administrative and back-office use cases. A significant number, 43%, are awaiting further development and testing before deploying GenAI in client-facing, front-office applications. Not surprisingly, InsurTechs will likely be the first movers for front-line deployments; 56% of respondents from InsurTechs say they are very excited about client-facing use cases for GenAI.

Actively evolving landscape
43%
of insurers are waiting for further development and testing before deploying GenAI into core client-facing applications.

2

Chapter 2

A dual-track approach to accelerating GenAI adoption

Grassroots experiments and enterprise strategy development should happen simultaneously.

Insurers have plenty of experience with disruptive technologies and can apply lessons from the past to chart the right course forward. The immediate priorities are to systematically identify and pilot use cases, while simultaneously establishing the necessary governance, infrastructure and operating models to scale adoption successfully. As both these tracks are critical, leaders must strike a balance in managing them. 

Findings from EY research confirm our experience working with insurers around the world – that it’s critical to both take quick action to start on the GenAI journey and methodically build a stable foundation for future success. Insurers that move too slowly risk being leapfrogged by the competition. And those that fail to build core infrastructure, governance and capabilities will struggle to consistently develop and scale GenAI applications and to maximize returns on their investments. Firms that embrace a dual-track approach will be well positioned to unlock immediate value even as they set the stage for sustainable success at scale.

1.  Encourage experimentation by equipping your people with GenAI tools

Accelerate grassroots innovation by deploying GenAI tools, including both internally and externally developed copilots and sandbox environments, and empowering users to explore and develop potential use cases. Appropriate guardrails can promote a safe and secure environment, such as protections on using internal data with public tools. Start with talent upskilling and foundational training, then prioritize quick-win use cases that can be tested and launched efficiently and with low risk, such as data summarization and report generation across near-term time horizons, for example eight to 18 months.

  • Take immediate action but prepare to fail fast: Leaders of strategy and innovation teams can champion a grassroots culture and spearhead initial pilots as they understand where targeted GenAI applications can be applied to address specific business problems. Encourage all staff levels and functions to test use cases autonomously with minimal oversight in sandbox environments. EY teams are working with a speciality insurer that has formed cross-functional teams to identify unmet business needs and assess how GenAI solutions can help, for example automating the policy renewal process.

  • Prioritize and pilot quickly: “Lite” frameworks can help determine the viability of GenAI solutions for starting-point use cases. To identify quick wins, leaders can weigh business value against the ability to execute. EY teams recently supported a life insurer in evaluating and prioritizing a lengthy backlog of use cases; identifying “clusters of value,” for example enhanced underwriting, ease of doing business, was critical to short-listing use cases aligned to enterprise goals.

Rapid piloting throughout the organization can quickly validate assumptions and hypotheses. For other insurers, EY teams are conducting six- to eight-week sprints to streamline the development and launch of high-priority use cases.

  • Set up guardrails: Determine the organization’s risk appetite and develop clear guidelines on what is and is not allowed for employee use of GenAI. Deploy off-the-shelf models in a sandbox environment to accelerate innovation through “test-and-learn” iterations. For a leading global insurance carrier, EY teams helped in creating  a dedicated, fit-for-purpose development environment to promote experimentation and testing with innovative ideas.

Compliance with the EU AI Act will be a baseline expectation. Other EY research shows senior leaders are focused on establishing the right guardrails and policies. In a recent survey of insurance chief risk officers (CROs), 81% said their firms had already enhanced or were in the process of enhancing policies around development, validation and use of GenAI. A similar number, 82%, said they had established a governance framework, policies and procedures for LLM and GenAI adoption or were working to establish them. You can see the full results here.  

2. Develop the enterprise strategic and technical infrastructure for GenAI

Even as they pursue quick wins and seek to build confidence with AI, insurers should craft the overall vision and determine how GenAI can transform the business over the long term. Key elements of the GenAI strategy include the delivery model, data governance, computing infrastructure (i.e., on-premise vs. cloud) and a prioritization framework to support desired business outcomes.

Ultimately, success with GenAI will be determined by innovative, externally oriented use cases that provide tangible long-term benefit such as, revenue growth and more accurate risk pricing. For many insurers, conducting a thorough assessment of organizational readiness and the maturity of current capabilities will be a sensible first step.

  • Mobilize cross-functional teams and centralize management: Multidisciplinary teams with different competencies, such as business, IT, security, compliance, should be charged with designing and delivering end-to-end solutions. We have seen first-hand how centralized management, coupled with enhanced capabilities and select competencies, provides a strong foundation for successful GenAI programs.

As GenAI adoption expands across the value chain, cross-functional teams should have the support of senior-level sponsors. Increasingly, we expect more heads of dedicated GenAI teams will report directly to the C-suite, including the CEO.

Most firms will need to fill key competency gaps with external talent. Engaging with third parties and tapping into an ecosystem of GenAI players can further accelerate adoption; large insurers may establish a framework to inform build-buy-partner decision making.

  • Establish data infrastructure and governance practices: As insurers mature their GenAI use, they should enhance governance and policies in line with their own needs and shifting regulations. Continuous monitoring of the regulatory landscape is essential.

Strong data governance starts with understanding the source of data, where it resides and who has access to it. Identify critical data that is used to generate judgements and establish clear controls for decision-making processes. Conduct regular reviews of AI-generated content. By maintaining data transparency and accountability, insurers can avoid “garbage-in, garbage out” scenarios.

Insurers should establish a strong data environment, such as closed- or open-source LLMs, to create, train and deploy GenAI models and solutions, and plan to enhance it on an ongoing basis. In parallel, they should design a capability for processing and managing unstructured and semi-structured data that supports reusability in line with strategic priorities.

  • Define measurable business outcomes and KPIs: Senior business leaders should contribute to GenAI development plans with target objectives for key business outcomes, such as reducing expense or loss ratios, over specific timeframes. Link GenAI use cases directly to key performance indicators within holistic scorecards. It is important for insurers to factor in operational improvements in productivity, accuracy and quality, as well as cost savings.

To maximize learnings and maintain a strategic allocation of resources, GenAI teams should work toward clearly defined stage gates across the innovation lifecycle, such as the POC, minimum viable product, pilot. By continuously vetting performance of GenAI applications using random control trials and other statistical methods, executives can accurately track progress against target objectives, such as productivity gains, to make more informed and confident go/no go decisions regarding which applications to scale.
 

Andres J Bernaciak and Jared Kwait were contributors to this article.

Summary

It is no longer a question if GenAI can benefit insurers, but rather how soon and to what extent. We think the shortest path to near-term value and the smartest course to long-term success involves taking two simultaneous tracks at once. Thus, insurers should work to promote bottom-up innovation while taking a top-down approach to set the strategic direction for the enterprise and provide the necessary infrastructure and resources.

Related articles

Five areas where insurance CROs can provide strategic leadership

The inaugural EY/IIF insurance risk management survey shows how CROs are strengthening core capabilities and serving as strategic advisors. Learn more.

18 Mar 2024 Stuart Doyle + 1

How increased trust and transparency can unlock growth

Explore the EY Global Insurance Industry Outlook. Learn more.

29 Nov 2023 Isabelle Santenac + 3

Four focal points for commercial insurance and reinsurance leaders

Shifting customer expectations and a focus on value are reshaping the dynamic commercial and reinsurance markets. Learn more.

16 Mar 2023 Simon Burtwell