Insurance Advice from a Robot? It’s Already Happening

Gaudilab /
min read
Updated: 16 November 2023
Written by
Insuranceopedia Staff
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Key Takeaways

  • As the technology improves and customer demand increases, robo-advisors will likely be a common offering by insurance companies.

The biggest buzz in the insurance industry lately is robo-advisors. Investors are already using robo-advisors and their sophisticated algorithms to help them manage investment portfolios, and soon they will be helping more and more insurance customers purchase and manage their policies.

This article will give an overview of robo-advisors and what is to come for the insurance industry.

What Is a Robo-Advisor?

A robo-advisor is a software program that blends data and analytics with artificial intelligence to offer insurance clients information and advice. Insurance companies realize that today’s consumers want readily available recommendations and solutions, and not always within normal business hours.

By answering customer inquiries and providing sophisticated advice at any time, on any device, and from anywhere, robo-advisors are driving sales and nurturing customer relationships on behalf of the insurer.

Can a Robot Compete with an Agent?

Robo-advisors have amazing capabilities. IPSoft, the developer behind the robo-advisor Amelia, promotes its product as the first digital employee and cognitive agent. Amelia speaks over 20 languages and uses sentiment analysis to determine the emotional state of the person she is interacting with. She also uses machine learning to develop as she goes, and the program is expected to improve with time.

Insurance companies can use a robo-advisor like Amelia to perform many of the tasks an insurance agent does (to find out what those are, see Insurance Agents: What’s the Point?). The robo-advisor could dispense information about suitable products and coverage, provide underwriting questionnaires, provide automated insurance claim work streams, and even offer to package insurance with investment options. And if the customer decides to buy a policy, they still don’t have to pick up the phone and call their agent; the robo-advisor can manage the entire process online, including approval and payment.

While the customer gets convenience, the insurer benefits from a larger pool of customers and can service many people simultaneously. Robo-advisors also ensure that the insurer provides consistent service and information.

Will Customers Embrace Robo-Advisors?

A 2017 Accenture Consulting survey of 32,715 consumers reveals that 74% of Americans are willing to use a robo-advisor to assist them to determine which insurance coverage they should purchase. A further 64% said they want personalized advice based on their individual circumstances.

The survey also indicates that people expect several benefits if they decide to use a robo-advisor, with more than half of respondents saying they would grant their insurance company access to their data if they received benefits in return.

Almost a third of survey participants said they expect their insurance to cost less and 26% believe the service must offer them impartial information. Speed and convenience ranked high for 39% of participates, too.

What’s Happening Now?

The insurance industry already uses robo-advisors for life insurance, particularly for annuity products. They’ve adopted the technology to reach millennials and post-millennials, and also those approaching or already in retirement.

Gen-Y and Gen-Z prospects already embrace technology and many welcome alternatives to traditional approaches. Over a third surveyed said they would consider buying insurance online.

Older prospects don’t usually shop for life insurance unless their financial advisor suggests it. A robo-advisor provides impartial, comprehensive insurance information beyond a financial advisor’s expertise. However, we’ll likely see investment companies adopting robo-advisors so they can provide insurance services too.

Robo-Advisors and the Future of the Industry

Robo-advisors present both a challenge and an opportunity for the insurance industry. Digital access is crucial for their future and many insurers are in transition as they begin to adopt these new technologies.

As they begin to focus more on advice and planning, we will probably see the insurance industry extend robo-advisors into other aspects of insurance. Savvy insurance carriers will tailor products for this new platform so they can access new clients.

A Blended Approach

While computer-generated advice may be more impartial and analytical, this doesn’t mean humans are out of the picture. Of those surveyed, almost two-thirds said they still want first-class human interaction, especially to discuss complex products or to resolve complaints. This means insurance providers must offer consumers a choice and blend their physical and digital capabilities.

Agents and brokers will need to provide in-depth and personalized information, especially for complex situations. They will need new information at their fingertips regarding carrier or legislative changes so they can pinpoint problem areas and direct clients to suitable solutions.

New Pricing Models

Data-driven pricing models are not a new idea. Car insurance companies now offer “Pay as You Drive” options using data collected from your vehicle (see An Intro to Usage-Based Insurance and Telematics to learn more). As robo-advisors move into the insurance landscape, we will probably see programs that track your insurance needs as you accumulate data. This could mean lower costs as robo-advisors may access many carriers and bundle policies to address your specific needs.

Companies may start to offer tiered account services, with varying fee levels depending on what the customer wants.

Increased Competition

Undoubtedly, insurers will face greater competition because robo-advisors allow consumers to compare offerings quickly and easily. They’re more economical, highly-automated, and offer planning tools. They also offer privacy and control for those who don’t want to deal with an agent or broker.

Wealth Management

We’ll also see insurance bundled with retirement planning and wealth management (learn more about Insurance as an Investment). Since investment giants have already aggressively adopted robo-advisors, changes in the insurance industry will probably happen quickly and should offer more options and lower prices for consumers

An Evolving Market

Younger consumers expect convenience and customizability, and they’re comfortable with all-digital services. As the insurance industry evolves to meet these new customers’ needs, robo-advisors are likely to become a standard offering, and the companies that best adapt to the use of artificial intelligence may gain a larger share of the market by doing so.

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