In October 2024, a remarkable gathering of over 9,000 insurance industry participants convened at the annual ITC Vegas insurance conference. This event served as a fertile ground for discussions on the burgeoning use of generative AI (gen AI) and its profound implications for the insurance sector. During an episode of the McKinsey on Insurance podcast, Matt Cooke, the global director of marketing and communications for McKinsey’s Financial Services Practice, engaged in a wide-ranging conversation with McKinsey senior partner Tanguy Catlin at ITC Vegas. They delved into the industry’s future trajectory, the necessity of remaining relevant in a changing marketplace, and the potential of gen AI in creating value.

Unlock the Potential of Generative AI in Insurance

Conference Highlights and Gen AI's Emergence

The ITC Vegas conference in 2024 brought together a diverse array of insurtechs and insurance companies. Many insurtechs focused on narrowly defined use cases, presenting a challenge for insurers aiming to integrate multiple aspects for a seamless customer journey. However, platforms are gradually emerging, simplifying the integration of insurtechs from a technological standpoint. The hot topic of the year was gen AI, with insurtech companies providing it to transform various aspects of customer care such as sales, claims, and underwriting. Ecosystems are also on the rise, enabling multiple participants to collaborate on complex problems.Unfortunately, many insurers began with an incomplete definition of gen AI, restricting their ability to leverage its full potential. Gen AI differs from traditional AI and is uniquely positioned to solve specific types of problems. While traditional AI is suitable for mathematical solutions, gen AI excels at making sense of context and opening up new use cases.

Gen AI in Different Insurance Lines

When considering personal, corporate, and life insurance lines, gen AI holds significant opportunities. It changes the way insurers engage with data, moving from requesting reports to having meaningful dialogues. For example, in claims and underwriting, gen AI can accelerate onboarding new people, improving policy underwriting, and ensuring compliance. There are four primary applications of gen AI across industries. In technology, it can create or translate code. In creativity, it generates hyperpersonalized content. In knowledge management and synthesis, it quickly accesses and presents relevant information. And in customer care, it has the potential to transform interactions by emulating empathy.Many insurance carriers obtain gen AI through platforms used for traditional functions. However, they need to develop applications in underwriting and claims themselves to differentiate.

Maturity of Gen AI Usage in the Industry

The pace of developing and improving gen AI is unprecedented. The emergence of AI agents is transformative, but driving change in human behavior is slower. Adoption and behavioral change require three to four times more time and resources than the technical side.

Impact of Climate Change on Insurance

In the US, the percentage of loss from catastrophic events covered by insurance has been declining. Climate change is one of the emerging risks for which the industry needs to find solutions. Insurers must work with regulators to optimize concentration risk, product coverage, and other elements. Educating drivers about the increased risks due to their actions is a significant challenge.

Autonomous Driving and Insurance

The automotive sector's approach to autonomous driving raises questions about insurance. Car manufacturers have the potential to offer insurance embedded in the car at the point of sale, leveraging their data and control over the repair value chain. However, they are not yet ready to invest a lot of capital in insurance. Insurance companies need access to vehicle and behavioral data to underwrite and price risk better. Accident frequency has not decreased as expected due to human distraction, and more collaborations are needed across the ecosystem.

Life Insurance in an Aging Population

Populations are aging in many countries, and life insurers need to adapt. Life insurance was originally designed for death protection in a different societal context. Now, with fewer marriages and later childbirth, the need for death coverage has decreased, while healthcare costs have risen. Insurers must find ways to be relevant in retirement, health, and wealth management.

Insurers' Search for Efficiency

Insurers are currently looking for ways to increase efficiency from their deployed capital. The trend of creating value across liabilities and asset management is set to continue and accelerate, differentiating winners from losers in the future.