BCG: Insurers Must Focus AI Efforts to Gain Edge

Insurance companies are failing to extract maximum value from artificial intelligence despite significant investment in the technology, according to new research released today by Boston Consulting Group (BCG).

The report by the global management consultancy urges insurers to avoid spreading resources across multiple functions and instead focus AI deployment on specific high-value areas to drive near-term profit and loss impact.

“Insurers should approach AI in all its forms with three things in mind,” the BCG report states. “Don't overstrategise the technology. Rather, use AI to narrow your bets and boost your competitive edge.”

The research indicates that companies need to prioritise transforming a few high-value functions and avoid subscale setups, while ensuring business leadership and investment in people and processes rather than allowing AI initiatives to become isolated in technology departments.

Strategic focus yields greater returns

BCG's 2024 global Build for the Future survey shows that companies taking a focused approach to AI investment expect to extract twice as much value as those spreading resources more thinly.

Companies achieving measurable financial impact are concentrating efforts in core areas such as underwriting, customer service, claims processing, or sales before expanding to other functions.

“AI leaders generate significantly more value than other companies by focusing on one of a few core areas before moving on to the next,” the report notes.

The research found that BCG's AI work with US and UK commercial property and casualty insurers suggests efficiency in complex lines of business can be improved by up to 36%, mainly by augmenting manual underwriting processes. 

The consultancy also expects up to a three percentage point loss-ratio improvement through better utilisation of previously inaccessible unstructured data in underwriting decisions.

In customer service, productivity gains of more than 30% have been achieved by equipping insurance service and operations employees with AI-powered tools. 

Knowledge assistants have accounted for almost two-thirds of these productivity gains, making them a strong starting point in digital transformation projects.

Claims transformation delivering measurable results

Claims management is being transformed through standalone applications that automate processes including first-notice-of-loss data extraction, document processing and smart triaging. 

These implementations have delivered cost reductions of up to 20% and increased claims processing speed by as much as 50%.

For simple claims, fully automated end-to-end process redesign is enabling real-time resolution for up to 70% of cases, cutting operational costs by 30% to 50% and improving customer satisfaction through faster, more transparent handling.

The impact on sales varies by distribution model. For direct writers, AI-driven agents can process large volumes of unqualified leads and direct customers to appropriate sales journeys. 

In agent and broker channels, AI can boost productivity by automating administrative tasks that currently consume more than 50% of an agent's time.

Information technology departments are serving as primary testing grounds for AI in insurance. 

One European insurer is implementing an AI-driven “smart migration” programme to transition more than 50% of its products from legacy to cloud-based architectures, expecting to cut migration time in half and reduce transition costs by 30%.

Other high-potential areas include software development, test automation and IT service management. 

AI-powered coding assistants help developers write, refactor, and test code faster, while virtual agents can automate level 1 IT support.

The BCG report warns that companies adopting a late-follower strategy may struggle to build necessary capabilities, particularly human skills. It recommends allocating 10% of resources to algorithms, 20% to technology and data, and the remainder to the human dimension.

“Most companies do not go the extra mile of redesigning the operating model and value tracking to the P&L,” the BCG report states, noting that success requires substantive changes to operating models and cross-functional collaboration between business and IT departments.

The report concludes that AI will not replace existing strategy but rather “supercharges current efforts, empowering insurers to accelerate progress toward their existing goals and set even more ambitious targets for the future”.

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