Since the dawn of industrialisation, mankind has been tinkering with short-cut contraptions. Designing and testing mechanisms that do more work with fewer resources, the process of mechanisation has dramatically changed labour and productivity in agriculture and manufacturing operations.

Some 250 years on, the rapid expansion in functionality and use of computer systems, coupled with the World Wide Web, is dramatically reforming the information services industries.

The focus may reside in a different sector, but the effect of automation is predicted to be the same: a full-scale overhaul of how jobs get done. And it’s happening now.

Fast world

Some sources have placed the number of Australian jobs with a moderate to high
likelihood of being eliminated by automation within the next 10 to 15 years as more than 5 million. That’s almost 40% of jobs that currently exist.

Committee for Economic Development of Australia (CEDA) Chief Executive Professor Stephen Martin says that the technological boom is unlikely to slow.

“The pace of technological advancement in the last 20 years has been unprecedented and that pace is likely to continue for the next 20 years,” Martin says. “Our labour market will be fundamentally reshaped by the scope and breadth of technological change, and if we do not embrace massive economic reform and focus on incentivising innovation, we will simply be left behind in an increasingly competitive global marketplace.”

What the insurance industry will look like after the next 20 years is yet to be established, but with automation already affecting underwriting, claims and broking, there is some certainty of the path inevitable change is likely to take.

In the business

The insurance industry is ripe for automation intervention, as it revolves primarily around analysis and processing of information. Low-level processing of claims, and some standardised underwriting, has already been passed over to automation, and it is expected that more will follow.

The labour market will be disrupted, through the direct substitute of computers for human resources, and the way work is conducted will transform, reducing the cost to consumers.

Machine learning – the process of computerised detection of data patterns and
analytic processing – promises to make good with the swathes of consumer information now available to businesses, otherwise known as Big Data.

KPMG UK research suggests that the insurance industry is on the verge of heavy automation, and that Big Data is to thank for the adjustment.

“The emergence of Big Data has also done much to propel machine learning up the business agenda,” KPMG UK Head of Data Engineering Gary Richardson says.

“The availability of masses of unstructured data – everything from weather readings through to social media posts – has not only provided new data for organisations to comb through, it has allowed businesses to start asking different questions from different data sets in order to achieve differentiated insights.”

Richardson says that recent research into machine learning shows the positive affect that automation will have on insurers’ bottom line.

“With a significant portion of an insurer’s cost structure devoted to human resources, any shift towards automation should deliver significant cost savings,” Richardson says.

“Our experience working with insurers suggests that – by using machines instead of humans – insurers could cut their claims processing times down from a number of months to just a matter of minutes. What is more, machine learning is often more accurate than humans meaning that insurers could also cut down the number of denials that result in appeals they may ultimately need to pay out.”

But, when it comes to the advice and advocacy provided by an experienced broker, BizCover Managing Director Michael Gottlieb isn’t convinced intermediaries are an endangered species.

“It is my expectation that automation will continue to expand into various areas of insurance where intermediation adds little value or where clients are looking to self educate and self serve,” Gottlieb says.

“The area most likely to continue to move online are those where intermediaries choose to act as agents of insurers and do not provide a genuine broking service, and the SME sector specifically for clients who ordinarily would not buy insurance other than for regulatory or contractual requirements.

“However, currently the customer experience through an intermediary is better than it is online.”

Gottlieb says that brokers will be in business so long as insurers maintain their steadfast focus on products, rather than on customers.

“Insurers are extremely product-focused and thus create product solutions rather than client solutions. Businesses typically have a myriad of risks and because of insurance industry is product- focused it requires the business to obtain multiple insurance policies often through different insurance companies,” he says.

“The process is time consuming, cumbersome, frustrating and easier to outsource to a intermediary to sort out. There will always be a segment of the market that values and is willing to pay for advice and advocacy.”

Stymied staff

Suncorp’s latest Insurance Insights white paper suggests that the automation of individual consumer products and small business packages is affecting the way that insurance professionals are recruited.

With an ever-increasing amount of work being automated, young professionals are missing out on learning on the job. Suncorp Commercial Insurance Executive General Manager Darren O’Connell says that the lack of skills training in lower-level risks could prove problematic for the industry.

“Previously, new recruits to the industry would be introduced to risk assessment and pricing in these basic lines,” O’Connell says.

“However, as a result of automation, entry-level underwriters are now forced to cut their teeth on more complex risks in other lines before they’ve had the chance to develop.

“The next generation will be entrusted with their business’s risk appetite without having the depth of experiences as their predecessors,” O’Connell adds.

However, BizCover’s Michael Gottlieb approaches the human resource debate from a different angle, reflecting a more future-focused solution.

“There is no point in not embracing technology because we want to protect entry-level administration positions that add very little value to a client,” Gottlieb says.

“Technology and automation create a new area of the industry that will employ significant numbers of people in analytics, reporting, marketing and software development. There is plenty to train but we need to train for the future and not hold onto the training programs of the past.”

Digital value

Further to the changes that such a skills reorientation would produce, there are also technical matters that may prove difficult for the insurance industry to overcome. These include the synthesis of business and IT procedures, the potential ‘gating’ of automation within different insurance categories, and the standardisation of data collection.

These issues are connected to culture, which is a serious dead weight within the industry, says KPMG’s Gary Richardson.“One of the biggest reasons insurers have been slow to adopt machine learning clearly comes down to culture,” he says.

“Generally speaking, the insurance sector is not widely viewed as being ‘early adopters’ of new technologies and approaches. The risk-averse culture of most insurers also dampens the organisation’s willingness to experiment and – if necessary – fail in its quest to uncover new approaches.”

But, regardless of the path that automation takes, it is clear that machine learning is here for the long haul. “The bottom line is that the machines have arrived. Insurance executives should be welcoming them with open arms.”