Insurance sector must include every layer of organisation to succeed with AI changes
As organisations of all kinds look to adopt AI tools in their operations, a new study has explored how CEOs and senior executives are approaching AI adoption in the insurance sector. According to Oxbow Partners, while the technology sits high in terms of C-suite investment priorities, almost seven-in-ten employees are worried about the way these changes may reshape the industry for the worse.
Digital transformation has constantly been sold to businesses over the last decade, as a way to ensure their companies are future-proofed, agile and adaptable. But over the last decade, each hyped technology leaders have hurriedly adopted has encountered a similar problem: a disconnect between the ambitions of businesses for the new tool, and the real picture of its use in a company. The latest example of this has been AI – where revenue impact remains minimal in many cases, while foundational areas such as data, governance and workforce capability are under-prioritised in its roll-out.
The insurance sector is no stranger to this disconnect. While firms are investing heavily in AI, many are still yet to define how it will actually create durable competitive advantage beyond efficiency gains, pilots or isolated use cases. Now, a new study from Oxbow Partners has focused on this gap – and argued that AI advantage will come from improving judgement, not simply automating activity.
In candid conversations with CEOs, the firm’s experts have spotted several consistent themes and questions emerge. Leaders are keen to know if other CEOs are seeing value from AI, and whether they might do better if they hired a chief data and AI officer. They also are keen to understand if AI efficiency really enhances performance, or is simply a cost-displacement – in the wake of a number of headline-grabbing changes to the pricing of leading AI providers.
According to Oxbow Partners, this final point is a legitimate concern – as “there is considerable uncertainty about the long-term cost of AI” – but this also depends on whether a firm has “a clear strategy for AI” in the first place. Similarly, while a chief AI officer could help what matters more than a title is a job description, and if the role is not about connecting and enabling the tool to a coherent plan, it may do nothing. This seems largely absent in the insurance sector, because the firm adds most damningly that “there is no evidence that insurers are currently seeing value from AI in their financials.”
From silos to pods
However, the researchers add they remain convinced that AI will “have a major impact on the way insurance companies operate and win, even if we do not yet know exactly how”. What they are sure of, is that AI initiatives deliver most when they are linked to holistic business outcomes.
Most insurers remain organised around functional silos: distribution, underwriting, claims, finance, operations, technology and so on. This is partly because automation used to require scale in standardised processes to pay off. But functional businesses tend to be static. Teams are incentivised to deliver a process as consistently and efficiently as possible, not to reinvent themselves continuously. But according to the experts, to get the most from AI, evolving away from this model will be necessary, along with the adoption of ‘domain pods’.
These are teams comprising members with complementary skills, say underwriting, data, and technology, and will be focused on building a differentiating capability that delivers sustained competitive advantage. Crucially, these pods will both change and run the domain. The people closest to the work are the ones who know what is important, but some different perspectives and skills are required to see what to fix and how to fix it.
This will also necessitate a change in how insurers listen to their own employees, though – if they are to be empowered to make agile decisions in such an environment. And what are those employees saying at the moment? A poll of 5,000 workers across the UK, US and Canada shows that while more than seven-in-ten of the C-suite are ‘excited’ about AI, around the same proportion of non-management employees are anxious or overwhelmed by the changes ahead. Considering they are on the front-line of any business, and understand the practical impacts of changes in that context better than a CEO, it is imperative that their concerns be listened to as part of the change process.
The researchers added, “AI amplifies whatever culture already exists. In organisations that reward responsible experimentation and continuous learning, it accelerates progress. In those that punish risk taking or rely on rigid hierarchies, it reinforces inertia. Leadership teams need to foster a culture that accepts uncertainty, tolerates uneven progress and values judgement over procedure.”
