By Christian Bieck and Craig Bedell, IBM

The insurance industry is facing a broad range of disruptive forces: changing demographics, volatile economies, sophisticated fraud attacks and rapid digitization of the industry.

At the same time, empowered consumers are demanding more from their insurance providers. Yet the traditionally conservative insurance industry has been slow in recognizing customers as individuals and providing personalized products and services.

In a recent IBM Institute for Business Value survey, 41 percent of respondents said that they changed insurers because the companies were too slow to react to their changing needs. That number is likely to grow as more customers become accustomed to faster and omni-channel service in other industries, such as retail.

To be successful amid such chaos and change, insurance leaders must be smarter in how they approach data. While the digital age has brought a massive amount of data brimming with potentially useful insights for insurers, organizations still struggle to unlock the full value of all that data.

Welcome to the age of cognitive computing, where cognitive-based systems can help bridge the gap between data quantity and data insights.

Intelligent machines simulate human brain capabilities to help solve society’s most vexing problems. They can build knowledge, understand natural language and provide confidence-weighted responses. And these systems can quickly identify new patterns and insights — capabilities that the insurance industry has never had before.

For the insurance industry, cognitive computing has indeed arrived, and its potential to transform the industry is enormous. Already, cognitive systems are using digital agents to help insurance underwriters make better decisions about their customers.

Our new research indicates that insurance industry leaders should focus on three areas to deal with the technological, economic and societal factors that are disrupting the industry today. They are:

1) Engagement: Cognitive systems can fundamentally change the way humans and systems interact. They can significantly extend the capabilities of humans by taking advantage of the systems’ ability to provide expert assistance. They provide advice by developing deep insights and providing this information to people in a timely, natural and usable way.

Because they are able to engage in dialogue with humans, cognitive systems can understand customers based on past communication and behavior. They use evidence-based reasoning. Today, these types of cognitive systems help insurers offer engaging and personalized interactions with consumers.

2) Discovery capabilities: Some discovery capabilities have already emerged. By using insights into customers’ behavior, providers can send personalized offers to individual consumers. Advanced cognitive capabilities have improved the bottom line by reducing operational costs.

In the near future, cognitive computing could scan images and contents of all legal and claims documents, and cross reference this information against each of the 50 states’ laws in the U.S., which often differ from state to state. In addition to improving costs, this process would help insurers better make better risk assessments and calculate premiums.

3) Decision capabilities: Cognitive systems aid in decision making and reduce human bias by offering evidence-based recommendations. They continually evolve based on new information, outcomes and actions. Current cognitive systems perform more as advisors by suggesting a set of options to human users, who ultimately make the final decisions.

These systems are helping insurance professionals make more informed and timely decisions. In claims management, they can greatly reduce processing times by instantly recognizing relevant passages from documents and communications.

Future applications might help underwriters assess the individual risk of each customer in a more personalized manner by combining weather data, geolocation data and other sources through mobile and newer technology.

The benefits of cognitive computing are not realized in a single “big bang” when they are initially rolled out. Instead, cognitive systems are evolutionary and provide increasing value over time. For the insurance industry, cognitive systems will enable insurers to be more nimble, more innovative and connected to their customers.

Christian Bieck is the Global Insurance Lead for the IBM Institute for Business Value.

Craig Bedell is a Global Insurance Industry Executive for IBM

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