Technology, particularly artificial intelligence (AI), is an important tool for the investment operation of an insurance company. We recently spoke with InsuranceAUM.com to discuss industry trends, and how AI is creating new opportunities in insurance investing.
We’ve seen some interesting trends across the insurance industry recently. There’s been accelerated convergence in the insurance vertical, with life and annuity insurers showing more participation in private equity and alternatives, prompted by macroeconomic conditions like rising interest rates and inflation. This convergence marries a stable source of long-term capital and less liquidity with firms trying to raise capital in an expensive market. There is also an increase in outsourcing and co-sourcing, which relieves the burden of acquiring and retaining in-house talent. Outsourcing also helps insurers access expertise in alternative investments or private credit, which is likely unfamiliar territory.
Another trend is the migration to cloud-native technologies, workflow interoperability and flexible data architecture. Being able to upgrade and maintain technology in a cloud environment is especially important for a hybrid or remote workforce. Initially, a safety measure in response to the COVID-19 pandemic, remote work and hybrid models are here to stay. Finally, ESG and its associated regulatory compliance and reporting requirements have seen an increased focus in recent years, bringing with it a bigger focus on risk and reporting.
To keep up with all of these trends, insurers need artificial intelligence technologies like natural language processing, optical character recognition, machine learning and intelligent workflow automation to turn the hundreds of bespoke notices and documents into more efficient processes. Again, this is where outsourcing can be helpful. Training a model to automate a process requires a large volume of data and documentation, as well as expertise to validate the data being extracted from those models.
We’ve also seen some interesting trends related to portfolios, like insurers increasing real estate and real asset investments. This is driven by the opportunity to capture yield in real estate investments through increasing rent and mortgage loans, as well as the recently-changed RBC requirements for insurers investing in certain types of real estate investments. Insurers are also increasing investments in high-yield bank loans, which allow the insurer to capture the rising interest rate trend. For mid to larger insurers, short-term pool structures offer yet another opportunity. Instead of borrowing from public or private markets, they can put idle cash in a short-term investment structure to capture higher yields.
To learn more about these trends, the opportunities arising from them and how technology can propel you forward, listen to the full "2023 Insurance Asset Management Technology and Investment Outlook" podcast.
