In 1997, the world of technology and human achievement was turned upside down when Garry Kasparov, world chess champion and one of the game's greatest thinkers, lost to Deep Blue, a chess computer developed by IBM. The event showed that machines are capable of surpassing human intelligence in specific domains. What happened to Kasparov, however, is not unique and reflects a broader pattern that we are also currently seeing in the insurance industry.

Insurance companies are currently in a favorable position. Profits remain high, operating models that have been used for years are successful, and there is little external pressure to change dramatically. While this situation seems ideal, it can actually lead to a dangerous trap: the innovation paradox. The innovation paradox occurs when, despite the realization that innovation is necessary for long-term success, companies tend to stick with existing, successful models.

The innovation paradox in the insurance industry is evident. While many insurance companies recognize the potential of AI and other emerging technologies, they feel little urgency to implement them. This may seem logical in the short term, as current operations are still profitable. However, this inertia can have serious long-term consequences. Companies that fail to innovate risk being overtaken by more agile and technologically advanced competitors, which can lead to loss of market share and, not unthinkably, even bankruptcy.

Warning

A literally and figuratively illustrative example of the innovation paradox comes from a very different industry: photography. Kodak, once a dominant player in the photography industry, tragically failed by sticking to its traditional business model despite the rise of digital photography. Kodak was aware of the rise of digital technology and had even developed some of the first digital cameras. Yet the company stuck to its old business model of film rolls because that still generated significant profits.

Kodak's management underestimated the speed at which digital photography would break through and saw no need to give up their profitable film production for a new but uncertain technology. This decision eventually led to Kodak's downfall as an industry leader, as digital photography took over and demand for traditional rolls of film fell dramatically.

Just as Kodak was faced with the rise of digital photography, the insurance industry is now facing the rise of AI. Despite the obvious benefits of AI, such as automated risk assessment, improved customer interaction and increased efficiency, there is still a reluctance in many insurance companies to fully embrace this technology. Profits and associated portfolio valuations are high, customers seem relatively satisfied (after all, the product is "low-interest") and the need to change does not seem urgent.

However, this complacency can lead to serious consequences. The insurance market is changing rapidly, and new global players that do fully embrace AI and other technologies can overtake traditional companies very quickly. Consider also Uber or Airbnb. These new players are often more agile, efficient and better able to

'I don't believe AI conquers us, but it challenges us to be better' - Garry Kasparov

Learning from Kasparov

Garry Kasparov's defeat against Deep Blue is an apt parallel for the insurance industry. Kasparov was a brilliant thinker and the undisputed world chess champion, but even he initially underestimated the power of the chess computer. He thought human intelligence and experience were invincible, but learned the hard way that technology, when properly applied, is capable of defeating even the smartest human opponents.

'Insurance industry inertia could have serious long-term consequences'

Insurers, proxies and intermediaries can learn from Kasparov's experience. It would be a mistake to think that current successes will protect them from the rise of AI. Just as Kasparov eventually realized he needed to partner with machines rather than fight against them, insurance companies should view AI as a partner rather than a threat. That way, they can not only remain competitive, but even strengthen their position in the market.

Advantages AI

The benefits of AI for insurance companies are enormous. AI can help automate risk assessments, personalize customer interactions, predict future trends and improve operational efficiency. For example, AI underwriting assistants can analyze customer information and perform risk assessments, speeding up underwriting processes and giving customers a better experience.

AI can significantly enhance the advisor 's role by analyzing customer data, providing relevant information and generating tailored advice. In today's market, where consolidations are becoming more frequent and the number of clients is increasing, advisors face the challenge of giving the right client the right attention at the right time. Clients expect an increasingly personalized approach, but the technological capabilities to make this happen are often underutilized. Moreover, there is a scarcity of qualified personnel, both professionally and in the field of ICT. AI can provide a solution here.

Multidisciplinary nature

However, implementing AI is not an easy task. It is often thought that installing AI systems is similar to installing a software package, but in reality it requires a multidisciplinary approach. This means that several specialists, including insurance experts, AI strategists, data engineers, machine learning engineers, solution architects and responsible AI officers, must work together to successfully implement AI solutions.

The multidisciplinary nature of AI implementation is crucial to ensure that the technology fits the specific needs of the insurance industry. This means that AI solutions must not only work technically, but also fit within the ethical standards and regulations in place in the industry.

Legitimate concerns about AI

Despite its many benefits, AI also rightly raises concerns, particularly regarding transparency and ethics. Just as Kasparov was initially skeptical about the capabilities of a chess computer, there are many today who doubt the use of AI in the insurance industry. A common concern is that AI will replace human jobs. While AI can indeed take over some tasks, it should be seen as a tool to enhance human capabilities, not replace them.

Another major concern is the transparency of AI systems. Models such as generative AI, which includes ChatGPT, are often seen as "black boxes" because their decisions are difficult to explain. This lack of transparency can be problematic, especially in sectors such as insurance where trust and understandability are essential. This highlights the need for transparent and explainable AI solutions.

In addition, ethical considerations play a crucial role in the deployment of AI. It is essential to ensure ethical standards and regulations to minimize negative impacts. This includes avoiding biases in AI models, ensuring the privacy and security of customer data, and maintaining transparency in decision-making processes. It is the job of AI strategists to ensure that their AI solutions are fair, responsible and respectful. Fortunately, there are also increasing guidelines such as the Alliance's data ethics frameworks and legislation such as the AI Act, which will discourage parties from inventing the wheel themselves with all the risks that entails.

Jack Vos: 'Next few years crucial'

Paradigm shift

The future of AI in the insurance industry looks promising. Insurance companies that embrace AI can take advantage of the many benefits this technology offers, including improved efficiency, growth and higher levels of customer satisfaction. However, the success of AI depends on the balance between human and machine. AI should be seen as a partner that enhances human capabilities, not replaces them. This means that insurance companies must invest not only in technology, but also in developing the skills and knowledge of their employees to work effectively with AI.

Just as Kasparov's loss against Deep Blue marked a turning point in the history of AI, the insurance industry is now at a similar crossroads. This requires the industry to undergo a paradigm shift: this is a fundamental change in the dominant frame of thinking within a field, often brought about by new insights or discoveries. It is up to the industry to determine whether AI will be embraced as a tool of growth and innovation, or whether fear of the unknown will prevail. In any case, the next few years will be crucial to how the industry redefines itself in light of this powerful technology.

Jack Vos is co-founder/CEO of Onesurance.ai and has been engaged in designing and applying AI solutions in the insurance industry since 2020.

Tip

Watch this inspiring yet humorous TEDtalk by Garry Kasparov on Youtube:

Don't fear Intelligent machines. Work with them.

In 15 minutes, Kasparov shares his vision of a future in which intelligent machines help humanity make its greatest dreams come true.

This article originally appeared in the VVP, read the online article here.