New IBM study: Insurance leaders agree that rapid adoption of generative AI is necessary to compete, but insurance customers express reservations

Rhea-AI Summary

IBM's Institute for Business Value conducted a study on generative AI in the insurance industry, surveying 1,000 insurance c-suite executives and 4,700 insurance customers. Key findings include:

1. Insurance CEOs are split on whether generative AI is more of a risk (49%) or opportunity (51%).
2. 77% of industry leaders believe generative AI is necessary to stay competitive.
3. Investments in generative AI are expected to increase by over 300% from 2023 to 2025.
4. Only 29% of insurance customers are comfortable with gen AI virtual agents providing service.
5. Organizations with less-centralized operating models for gen AI development can improve business outcomes by up to 14%.

The study recommends building tailored products, addressing trust issues, and deploying AI across the enterprise with strong governance.

Positive

• 77% of industry leaders acknowledge generative AI is necessary to stay competitive
• Investments in generative AI expected to surge by over 300% from 2023 to 2025
• Less-centralized operating models for gen AI development can improve business outcomes by up to 14%

Negative

• Only 29% of insurance customers are comfortable with gen AI virtual agents providing service
• Only 26% of customers trust the reliability and accuracy of advice given by generative AI
• 49% of Insurance CEOs see generative AI as more of a risk than an opportunity

Insights

Technology Analyst

This study highlights a significant shift in the insurance industry towards generative AI adoption. The projected 300% increase in gen AI investments from 2023 to 2025 indicates a rapid transformation in the sector. However, the disconnect between insurers' focus on customer experience and customers' desire for personalized risk products presents both challenges and opportunities.

The 77% of industry leaders acknowledging gen AI as necessary for competitiveness underscores its strategic importance. Yet, the low customer trust (only 29% comfortable with AI agents) highlights the need for robust governance and ethical AI frameworks.

For IBM, this trend could drive demand for their AI and cloud services in the insurance sector. The company's expertise in enterprise AI and financial services positions them well to capitalize on this market shift. Investors should monitor IBM's performance in securing partnerships and contracts with insurers for AI implementation.

Market Research Analyst

The study reveals a critical gap in the insurance market: while insurers are rushing to adopt generative AI, customers are skeptical about its use. This misalignment presents both risks and opportunities for the industry.

The split opinion among CEOs (49% seeing gen AI as a risk vs. 51% as an opportunity) reflects the industry's uncertainty. However, the projected surge in AI investments suggests a "fear of missing out" driving adoption.

For IBM, this market dynamic could be highly beneficial. Their expertise in AI governance and ethical AI implementation addresses a key customer concern. The recommendation to build more tailored products and address trust issues aligns with IBM's strengths in data analytics and security. This positions IBM as a potential leader in guiding the insurance industry through this technological transition, potentially boosting their market share in the sector.

Financial Analyst

The study's findings have significant implications for IBM's financial outlook. The projected 300% increase in generative AI investments in the insurance sector represents a substantial market opportunity. Given IBM's strong position in enterprise AI and financial services, this could translate into increased revenue from their Technology and Consulting segments.

However, the low customer trust in AI (26% trust in AI advice) suggests a need for substantial investment in AI governance and ethics, which could impact short-term profitability. The recommendation for insurers to deploy AI across the enterprise aligns with IBM's comprehensive service offerings, potentially driving long-term growth.

Investors should monitor IBM's market share in insurance AI implementations and any announcements of major partnerships or contracts in this sector. The company's ability to address the trust gap and deliver tailored AI solutions for insurers could be a key differentiator in this competitive market.

C-suite executives see generative AI as both a risk and an opportunity

ARMONK, N.Y., Oct. 16, 2024 /PRNewswire/ -- New research by IBM's (NYSE: IBM) Institute for Business Value identifies a disconnect between how insurers and their customers prioritize the use of generative AI, with industry executives focusing on experience while their clients are seeking personalized risk products and insights.

Findings from a survey of 1,000 insurance c-suite executives in 23 countries and 4,700 insurance customers in nine countries are outlined in Generative AI in the Insurance Industry: You Can't Win if You Don't Play.

"The insurance industry has made headway in generative AI with customer experience and chatbot enhancements, but insurers must focus on adopting comprehensive governance frameworks that ensure transparency, privacy, and explainability to ensure they are building trusted AI assistants and reliable processes," said Mark McLaughlin, Director of Global Insurance with IBM Technology. "There are also significant opportunities in connecting customers to the right products. Leveraging AI across the enterprise will be critical to improve both customer risk experiences and to implement the underlying IT tools that power those experiences."

Key Takeaways 

• Insurance CEOs surveyed were almost evenly divided on whether they see generative as more of a risk (49%) versus an opportunity (51%)
• 77% of industry leaders who responded acknowledge that generative AI is necessary to keep pace with competitors
• Investments in gen AI are expected to surge by over 300% from 2023 to 2025 as organizations move from pilots in one or two areas to implementations in multiple functions across business lines
• Only 29% of insurance customers queried said they are comfortable with gen AI virtual agents providing service, with only 26% saying they trust in the reliability and accuracy of advice given by generative AI
• Organizations choosing less-centralized operating models to develop gen AI capabilities can improve business outcomes by up to 14%

Recommendations

• Build more tailored products with flexibility, advice, and linkage to risk data
• Match those products intelligently to customers' needs
• Address trust issues with strongly ethical, governed AI
• Also use AI to connect the underlying risk data and address long-standing insurer and financial service provider technical debt
• Deploy – and govern – AI across the enterprise with local knowledge experts empowered to connect AI to the insurance value chain

Download the full report here: www.ibm.com/thought-leadership/institute-business-value/en-us/report/insurance-generative-ai

IBM is a leading provider of enterprise AI, hybrid cloud architecture, security and ESG insights to the global financial services sector. Its deep industry expertise, extensive portfolio of services and solutions, and its robust ecosystem of fintech partners, empower collaboration, innovation, and creation with clients. As a trusted partner to banks, insurers, capital markets and payments providers, IBM guides financial institutions on all stages of their digital transformation journeys through IBM Consulting and delivers the proven infrastructure, software, and services they need through IBM Technology. For more information, visit https://www.ibm.com/industries/insurance.

Methodology

The IBM Institute for Business Value (IBM IBV), in cooperation with Oxford Economics, surveyed 1,000 C-level insurance executives in 23 countries in Q3 2024. 60% of the sample represented pure insurers, 35% bancassurers, and 5% insurance captives of non-financial services and insurance industry organizations selling to the wider insurance market. Participants were asked a range of questions in various formats (multiple choice numerical and Likert scale) about their organization's expectations, results, concerns, and barriers for the use of generative AI in various parts of the organization, as well as relevant technological and business KPIs that allowed a quantitative assessment of the efficacy of these uses.

In the same timeframe, the IBM IBV also surveyed 4,700 insurance customers in nine countries, with a minimum of 900 respondents in each country: Australia, Canada, China, France, Germany, Hong Kong, Japan, UK, and US. Customers were asked a mirror of some of the questions the above executives received on gen AI benefits and concerns, allowing IBM IBV to gauge agreements and gaps in executive and customer perceptions.

The IBM Institute for Business Value, IBM's thought leadership think tank, combines global research and performance data with expertise from industry thinkers and leading academics to deliver insights that make business leaders smarter. For more world-class thought leadership, visit www.ibm.com/ibv.

About IBM

IBM is a leading provider of global hybrid cloud and AI, and consulting expertise. We help clients in more than 175 countries capitalize on insights from their data, streamline business processes, reduce costs and gain the competitive edge in their industries. Thousands of government and corporate entities in critical infrastructure areas such as financial services, telecommunications and healthcare rely on IBM's hybrid cloud platform and Red Hat OpenShift to affect their digital transformations quickly, efficiently and securely. IBM's breakthrough innovations in AI, quantum computing, industry-specific cloud solutions and consulting deliver open and flexible options to our clients. All of this is backed by IBM's long-standing commitment to trust, transparency, responsibility, inclusivity and service.  Visit www.ibm.com for more information.

Media Contact

Mary Ellen Higgins
IBM Global Financial Services Industry External Communications
maryellen.higgins@ibm.com
m +1.781.789.1911

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SOURCE IBM

FAQ

What percentage of insurance CEOs view generative AI as an opportunity according to the IBM study?

According to the IBM study, 51% of insurance CEOs view generative AI as an opportunity.

How much are investments in generative AI expected to increase from 2023 to 2025 in the insurance industry?

The IBM study reveals that investments in generative AI are expected to surge by over 300% from 2023 to 2025 in the insurance industry.

What percentage of insurance customers are comfortable with generative AI virtual agents providing service?

The IBM study found that only 29% of insurance customers said they are comfortable with generative AI virtual agents providing service.

How can less-centralized operating models for generative AI development impact business outcomes according to the IBM study?

According to the IBM study, organizations choosing less-centralized operating models to develop generative AI capabilities can improve business outcomes by up to 14%.