The Fintech Newsletter

Generative AI is Coming for Insurance (May 2023 Fintech Newsletter)

Joe Schmidt, Sumeet Singh, and Seema Amble

Posted May 31, 2023

Generative AI is Coming for Insurance

Joe Schmidt

Because underwriting, selling, and servicing rely so heavily on humans processing large quantities of written or verbal communication, existing tools have struggled to properly automate these services and materially impact loss ratios (losses on written premiums) and expense ratios (underwriting and servicing written premiums). Large language models (LLMs), with their ability to proficiently collect and distill large amounts of data, could change this as they can augment or fully replace the process of a human combing through large amounts of data.

While current machine learning technology allows for improved decisioning on simple products like auto and home insurance, more complex underwriting processes like commercial and life insurance remain challenging. This has less to do with the process of decisioning relevant data and more to do with collecting and synthesizing the relevant data. While traditional ML models have helped dramatically improve more standardized underwriting processes like home and auto, LLMs could potentially help with the more complex group by gathering data to help underwriters make better decisions, especially in more intricate cases like large commercial policies where more context and follow-up questions are required. For example, most large commercial policies cover dozens or more locations, and each location has specific nuances (such as electrical panels, fire doors, sprinkler density/effectiveness, management effectiveness, amount of combustible storage) that must be gathered from the applicant, understood by the underwriter, and evaluated against underwriting guidelines. LLM-powered workflow software for underwriters could drive down underwriting time and cost while increasing accuracy.

On the sales side, considered purchases, like life or disability insurance and annuities, are primarily sold offline through human agents and brokers because they’re complicated products that buyers often have questions about. (Consumers are quicker to buy mandatory insurance products, like home or auto insurance, online.) LLMs trained on customer data or materials on what policies are appropriate for a certain customer situation could help answer complex questions for consumers about what policies they should buy and how that policy might impact their unique needs.

And finally, carriers and agencies employ large policy-servicing divisions to help with changing policies, customer support, and claims, as well as “internal wholesaler” teams to constantly monitor and service the production of affiliated agencies or brokerages. Think of these as vertical-specific call centers where a representative needs to distill what a customer, agent, or broker actually needs during a conversational dialogue, and either respond with the answer or enter the appropriate information into a system. Allowing LLMs to manage some of these conversations could dramatically improve efficiency and profitability.

Joe Schmidt is a partner at Andreessen Horowitz, where he focuses on fintech and insurtech.

Visa+, Interoperability, and Creating Clearinghouses for New Payment Methods

Seema Amble

Last month, Visa announced its Visa+ initiative to connect peer-to-peer (P2P) payment platforms. Launching later this year, Visa+ will allow users of different P2P payment services to pay each other directly after they create a personalized “payname,” or handle, to connect their accounts. The service will also create an interoperable path for third parties to connect to P2P customers through a single platform (e.g., allowing a merchant or platform to make disbursements via the P2P platforms). Visa+  will launch with Venmo and PayPal (even though, yes, PayPal owns Venmo, users can’t yet transfer money between the two services in real time…) and will add DailyPay, i2c, TabaPay, and Western Union as partners in 2024.

Visa needs to get a number of things right here, but if they succeed, there’s an interesting opportunity for them to become the clearinghouse for instant P2P payments, much as they are for card payments. More broadly, the introduction of Visa+ raises a question around the proliferation of payment methods and whether we’ll see more centralized clearing or consolidation.

With Visa+, Visa simplifies how merchants can receive payments; instead of having to integrate with three or four P2P providers, they can now (potentially) just integrate with one. The same applies for employers, who would prefer to integrate with just one wallet provider, not five. Visa’s involvement and additional layer of authentication also provides participating P2P platforms with some amount of fraud detection and securityIt also allows the company to strategically sit  in the middle of all P2P transactions. This scenario can also potentially extend to cross-border use cases; for example, a user of a wallet that operates in the U.S. could send money to a Visa+ user in Kenya, even if the two wallets didn’t do cross-border payments.

For Visa+ to be successful, Visa needs to figure out how to convince consumers to create yet another payname and use the service. Part of this effort will be up to marketing, but the company also needs to open up a new use case for consumers, solve a common friction point, or both (e.g., if Visa+ made it easier for gig workers to receive payment). Visa+ also needs to account for the absence of CashApp and Zelle, which are used by 30-40% of the U.S. population), as well as major wallet providers like Google Pay and Apple Pay, from the service. Without these players, the benefit of participating in a meta layer is more limited. Visa, as it often does, can use marketing incentives to get these platforms to work with Visa+—though these benefits may not supersede the platforms’ desire to own their relationships with their customers (versus ceding it to a third party like Visa). This is especially true for EWS, the fintech company that owns Zelle and is itself co-owned by seven U.S. banks. Seeing as Visa was also originally controlled by a consortium of banks, EWS may not want to undergo a similar disruption.

Payments products take time to adopt. ApplePay, NFC-based cards, and other successful examples all took more than 10 years to gain widespread adoption. So, even if Visa can pull off the execution of this, I wouldn’t expect broad consumer adoption of Visa+ immediately, but it’s one to watch and see. Interoperability is also a theme that will emerge given the proliferation of consumer (and also B2B) payment options at checkout across wallets, BNPL, pay by bank, and more.

Seema Amble is a partner at Andreessen Horowitz, where she focuses on SaaS and fintech investments in B2B fintech, payments, CFO tools, and vertical software.

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