By Peter Phillips, chief technology officer at Cover Genius

The recent surge in hype around artificial intelligence might lead some to believe it’s a newcomer to industries such as insurance.

In reality, AI has long been an integral part of the sector, leveraging machine learning and data mining across various applications.

The evolution of large language models (LLMs) in 2023 and last year marked a pivotal shift, redefining what many now perceive as AI. It has unlocked substantial opportunities by enhancing capabilities in areas such as customer interaction, claims processing and personalised recommendations, leading to more advanced and efficient AI-driven solutions in insurance.

This year, AI implementation at scale is well under way, transforming areas from underwriting to customer relations. AI is poised to revolutionise nearly every aspect of the insurance landscape.

Proof of concept to standardisation – picking up pace

According to a recent KPMG report – Keeping Us Up At Night: The Big Issues Facing Business Leaders in 2025 – 48% of surveyed Australian bosses rank “new technologies, including AI, and the use cases and ethics that arise when implementing” among their top five challenges in the next three to five years.

The report also suggests this is likely to be the year when AI will evolve from a conceptual challenge to a practical one, while bringing substantial return on investment and scalability.

The challenges and benefits are already becoming evident. A key advantage lies in enhancing customer experience. Previously, support bots have been rudimentary in that they understood basic queries only, but now, advanced reasoning models can greatly improve understanding.

If an insurance company can leverage AI to grasp user intent more accurately, it can provide a much more accurate answer – moving beyond simple keyword matches that often miss the mark and lead to frustration. This results in faster, more precise responses to customer queries.

Building on this, advanced chatbots have the potential to replace traditional interactive voice response systems, alleviating another common customer pain point.

It’s easy to see that AI is unlocking better ways for customers to interact with insurance platforms and get the information they need quickly and easily – whether for a claim or information about policies.

Streamlining claims processing

Traditionally, claims processing has involved many status checks and manual interventions, such as reviewing invoices, policy wordings and statements.

AI and optical character recognition (OCR) are pivotal in automating and streamlining these tasks.

While OCR is an established technology, recent advancements in AI and LLMs have significantly enhanced its capabilities. AI-driven OCR now offers greater accuracy by adapting to various text styles and conditions, while LLMs provide contextual understanding and error correction.

This allows for more accurate data extraction from documents such as rental agreements and medical bills, converting them into easily processed text formats.

Furthermore, AI enables OCR to support many languages and effectively structure complex documents, integrating seamlessly into automated workflows. While human oversight remains essential for complex claims, AI significantly speeds up simpler cases, reducing resolution times for providers and minimising the financial burden on individuals.

Risk, compliance and regulation front and centre

While AI holds immense potential, its widespread adoption is still in the early stages, necessitating a careful and measured approach.

Regulatory frameworks are often struggling to keep pace with rapid implementation.

To balance this, companies must foster a culture of customer-centric compliance, with a keen awareness of data privacy and consent issues.

As organisations and governments work towards striking the right balance between implementation and regulation, we expect demand for roles in these areas to grow over the next several years.

By establishing strong foundations, AI can transform roles, enabling people to focus on higher-value tasks and creating claims processing and settlement flows that benefit customers and make for a more efficient industry.

The current complexity underscores the importance of building a solid foundation from the outset.

For more in-depth analysis, features and opinion, read the latest Insurance News magazine