3 Cutting-Edge Technologies That Will Shape Insurance Risk Assessment in 2024

Accurately evaluating risk is the crucial foundation of the insurance industry. By precisely estimating the likelihood of claims arising, insurers can price policies appropriately without taking on excess exposure. However, with both commercial and personal insurance customers demanding the best rates, underwriters walk a fine line. They must fully account for risks without tacking on a large "safety margin" in their evaluations.

So how can insurance professionals enhance their risk assessment capabilities in 2024? In this comprehensive guide, we‘ll explore 3 advanced technologies that are transforming risk assessment:

1. Video chat platforms for remote site assessments
2. Internet of Things (IoT) devices providing real-time data
3. AI models automating parts of the quantitative risk analysis process

By implementing solutions like these, insurers can reduce uncertainty around risk estimates and operate more profitably. Read on to learn how these technologies work, their benefits, and real-world examples of leading insurance companies putting them into practice.

Why Accurate Risk Assessment is Crucial for Insurers‘ Success

Before diving into the technologies transforming risk assessment, it‘s helpful to understand why accurate evaluation of risk factors is so critical for an insurer‘s bottom line.

Risk assessment enables insurers to intelligently price policies and manage their overall risk exposure. However, pricing pressure from both commercial and personal insurance customers means carriers operate on slim margins.

In 2022, the average insurer‘s return on equity was only 8.2% [cite ROI stat]. With profitability already constrained, insurers cannot simply add a large risk "cushion" on top of their actuarial estimates without pricing themselves out of the market.

At the same time, underestimating risk exposure can be even more disastrous. Setting premiums too low can lead an insurer to collect inadequate funds to cover future claims.

To thrive in today‘s competitive landscape, insurers need advanced capabilities to conduct precise, data-driven risk assessments. New technologies are giving insurers the tools to achieve this by:

• Collecting and analyzing more relevant data from new sources
• Automating parts of the risk quantification process for efficiency
• Dynamically updating risk models instead of relying on static snapshots

Next, let‘s explore 3 technologies at the leading edge of enhancing risk assessment.

1. Remote Video Assessments Provide Location-Specific Risk Analysis

Insurance risk often comes down to specifics of a location. When evaluating the exposures at a commercial site, for example, details like building materials, proximity to flood zones, on-site equipment, and emergency response capabilities are critical factors.

Traditionally, risk engineers would conduct tedious and expensive in-person site visits to gather this location-specific information. But new remote video assessment capabilities are proving just as effective—at a fraction of the cost.

Rather than sending personnel out in the field, insurers can work with specialized technology partners like RiskEye to perform remote video risk assessments. The process uses a combination of live-streamed video, photos, on-site measurements, and satellite data.

For example, an insurer evaluating the flood risk at a chemical plant can virtually inspect the surrounding terrain, drainage systems, flood barriers, and distance to bodies of water.

The benefits of remote video assessments include:

• Lower costs: No expenses required for travel, lodging, or personnel time on the road. RiskEye estimates their remote approach reduces insurers‘ inspection costs by 40% to 60%.
• Faster turnaround: Video assessments eliminate travel time, allowing inspectors to evaluate sites across geographic regions in quick succession. Entire portfolio risk reviews are streamlined.
• Consistent standards: When underwriting multiple locations, subjective judgments between in-person inspectors can vary. Remote video assessments apply consistent criteria.
• Reduced emissions: Cutting business travel provides environmental benefits as insurers reduce their carbon footprints.

Liberty Mutual, AAA, and other leading insurers have adopted RiskEye‘s remote video assessments to gather location-specific data while controlling costs. As this technology improves, expect broader adoption for precise property risk analysis.

2. Internet of Things Devices Provide Real-Time Risk Insights

Another technology-driven shift in risk assessment is the availability of real-time data from internet of things (IoT) devices.

Smartphones, wearables, telematics, connected homes, and sensors throughout businesses all continuously produce data via internet-connected networks. For insurers, analyzing this real-world IoT data uncovers unique risk insights.

Let‘s look at examples of how IoT devices are enhancing data-driven risk analysis across personal and commercial insurance:

• Auto Insurance: Telematics and usage-based insurance (UBI) programs allow auto insurers to base premiums partially on driving behavior, including acceleration, braking, average speed, and mileage. Progressive‘s Snapshot program found safe drivers have fewer accidents, so those sharing good data [cite study] receive discounts.
• Health Insurance: Wearables like Fitbits track personalized biometric data including activity levels, heart rate, sleep patterns, and more. This helps insurers better estimate risk factors tied to health behaviors. John Hancock charges lower life insurance premiums to members hitting step targets tracked by fitness devices.
• Home Insurance: "Smart home" systems can detect water leaks, monitor fire hazards, and confirm smoke detector functionality, giving improved visibility into damage risks. Hippo Insurance partners with home device maker SimpliSafe to provide monitoring discounts.
• Workers‘ Compensation: For business insurance, IoT data from factory equipment and vehicles gives insurers clearer visibility into occupational accident risks. Sensor data indicating high vibration or temperature levels in machinery, for example, allows proactively addressing hazards.

As more devices produce real-time data, insurers can continuously update risk assessment models rather than relying on static snapshots from annual renewals. This granular data supports usage-based insurance, dynamic pricing, and incentivizing lower-risk behavior.

3. AI and Advanced Analytics Automate Risk Assessment

Artificial intelligence is automating much of the manual work in quantitative risk analysis. AI technologies help insurers digest the explosion of available data and optimize complex risk models.

Specific AI applications transforming insurance risk assessment include:

Natural Language Processing (NLP)

• Analyzes text-based data like accident reports, medical records, and call center transcripts to derive risk insights.
• Extracts key information from documents rather than relying on manual data entry.

Predictive Analytics

• Identifies correlations between variables like credit scores and loss ratios to improve risk predictions.
• Spots patterns human actuaries may miss to enhance loss forecasting accuracy.

Optical Character Recognition (OCR)

• Automates data extraction from scanned documents and forms through template matching.
• Reduces manual workflows; up to 50% of underwriters‘ time spent on data entry [cite Accenture stat].

Expert Systems

• Mimic underwriters‘ decision-making processes and expertise through rules-based models.
• Provide risk analysis consistency while retaining human oversight.

Adopting these technologies, leading insurers are achieving efficiency gains like:

• Reducing loss adjustment expenses by 10% [cite Lemonade stat]
• Cutting quote-to-bind turnaround time from 14 days to 5 minutes [cite Zurich stat]

Major insurance AI partners include HyperScience, Lemonade, and Cape Analytics.

Despite AI‘s advantages, challenges remain around explainability and potential biases hidden within data. Responsible use requires human governance of automated systems. But overall, AI is making risk assessment faster and more quantitatively driven.

Moving Risk Assessment Capabilities to the Next Level

As an insurance professional, it‘s an exciting time to see technologies like remote video assessments, IoT devices, and AI delivering new risk insights while optimizing workflows.

Legacy insurers often struggle with digital transformation due to constrained budgets and resources. An effective way to accelerate modernization is through insurtech partnerships.

Forward-thinking insurtechs provide easy-to-implement cloud platforms for digital risk analysis capabilities. Top insurance technology partners include:

RiskEye – Remotely captures location-specific data across property and equipment risks for commercial lines using AI-powered image capture.

Cape Analytics – Leverages AI and aerial imagery to instantly evaluate property characteristics, replacement costs, and risks. Over 30 top insurers use their platform.

Planck – Their AI extracts data from documents like loss run reports to improve underwriting decisions. Reduces manual workflows.

Simplesurance – APIs allow partners to integrate modular digital insurance products into their own platforms to launch usage-based and on-demand coverage.

As insurers look to strengthen risk assessment practices in 2024, implementing proven solutions like these will drive growth through lower loss costs, expanded market reach, and boosted efficiency. Contact innovative insurtechs and technology partners to explore how you can put modern data science and automation to work assessing risk today.