Write a minimum 1500 words research paper on how AI is used in Canadian Banking and

Insurance industry.

Provide examples of how AI is used in Canadian Banking industry and its implications for

customer service, financial inclusion, as well as financial and operational efficiencies.

Banking in Canada, although now largely digital in operation, continues to involve many human-

based processes. The following are some examples of how AI is being used in the industry to

mitigate against the potential for human error, increase security and efficiencies, and adapt to

the needs of the modern customer.

General and Predictive Analysis

Financial services institutions are developing AI models that are capable of analyzing large

amounts of data to identify market trends, prioritize risks and monitor them accordingly. These

AI models are used to detect specific patterns and correlations in the data collected, which can

in turn be used identify new sales opportunities or assist with revenue forecasting, stock price

predictions and risk management.

Fraud Detection

Financial services institutions have traditionally relied on “know your customer” (“KYC”)

requirements and rule-based anti-money laundering (“AML”) monitoring systems to protect

against fraud. With the increase in fraud-related crimes and consistently changing fraud

patterns, financial services organizations and regulators are applying AI to existing fraud-

detection systems, to identify data anomalies, patterns and suspicious relationships between
individuals and entities that previously went undetected. By looking at customer behaviours

and patterns instead of specific rules, proactive AI-based systems represent a significant

transition away from more traditional, reactive approaches to fraud detection.

Chatbots

Chatbots are one of the most commonly used applications of AI across industries and have

been embraced by many financial services organizations. Chatbots can take different forms,

most frequently serving as a “virtual assistant”, are available 24/7, and can handle many

standard banking tasks and inquiries that previously necessitated person-to-person interaction.

To the extent that chatbots collect personal information or provide financial advice, their

activities are likely to be subject to regulatory scrutiny.

Loan and Credit Decisions

Many financial services institutions continue to rely on credit scores, credit history, customer

references and banking transactions to determine whether or not an individual or entity is

creditworthy. However, these credit reporting systems often miss real-world transaction history

and other information that impacts creditworthiness. As a result, financial services institutions

have implemented AI-based systems to help make more informed, safer and profitable loan

and credit decisions. In addition to working off of available data, AI-based loan decision systems

and ML algorithms can look at behaviors, patterns and other data to predict the probability of

default, which helps to improve the accuracy of credit decisions.

those made by their human counterparts, a challenge discussed further below.

Robo-Advisers

In simple terms, a robo-adviser attempts to understand a customer’s financial circumstances by

analyzing data shared by the customer, as well as their financial history. Based on this data and

the customers’ goals, a robo-adviser can provide appropriate investment recommendations

(including with regard to specific account options, asset holdings and balancing options).

Capable of quickly analyzing current and historical market trends, AI and ML are now being

applied across the investing and wealth management industry.

Provide examples of AI is used in the health and auto insurance businesses.

Better Outcomes

It’s important to note that a majority of the price consumers pay when enrolling in health

insurance goes into risk prediction and risk management. By using AI to create a system that

can create more accurate risk models and predict which individuals need specific types of care,

health insurance providers can spend more money on their beneficiaries and less on those

processes

Challenges

It's also important to mention the challenges that come with this technology. AI uses data to

generate insights. It is difficult to use AI in the insurance purchasing process because access to

data to generate these insights is hard to come by. To sell someone insurance, you need to
know the details of their life, health, family, scheduled surgeries, etc., to inform the best

recommendation for insurance and budget. On the phone you can talk through these needs,

but a machine can’t access that information from a consumer directly. There will always be

tension between asking questions, slowing down the process and crunching the numbers

versus getting that data from other sources and piecing it together on the consumer's behalf.A

lot of companies are still trying to figure out how to organize data in a way that can be

consumed; this is a challenge right now as we are still in early adoption. How can consumers

trust that a machine made the right choice for them? How can it save time and narrow down

the best options —

Discuss implications for consumers and insurance companies for AI’s penetration in

underwriting, claims processing, and customer service activities for the insurance business

Enabling portfolio innovation:

For Digitizing world, we need fast and cost-effective product innovation such as on-demand

insurance, micro insurance, and usage-based insurance. Accompanying these new products

with incentives and programs to encourage adoption. For this we need real-time input and

analysis of different types of data from sensors or other data transmission devices using AI

models which are capable of unlocking value from data in real-time. Thus we will help insurers

to speed up their processes, and bring new and innovative products and services to market

faster.

Ex - British motor insurer Admiral is using Facebook Messenger to predict driving behavior. The

insurer recently partnered with Vodafone to provide the underlying telematics services.
Currently AI is having only a small impact on insurance, but it will pick up pace across the

sector. Looking at future risks, it is depicting a positive force.

Improving the customer experience

To overcome slow insurance procedures especially in property and casualty, in 2017, insurers

invested in AI to improve operational efficiency by automating claims processing and customer

engagement/servicing (Chatbots). Virtual assistant can assist customers with Doubts, Purchases

& Transactions in natural language. Robo-advice (Chatbots) has potential in low-middle wealth

segment & youth because of low pricing, understanding of consumer behavior & optimum

advice. Also this can be used to offer beyond-insurance‘ coverage and value added services

like data-enabled healthy lifestyle, fitness & driving habit advice using IoT & AI.

Ex - AIG achieved an investment boost of $244bn in its retirement units, LV= (a UK-based

retirement mutual insurer) invested £10m in the robo-advisor Wealth Wizards in 2017 and

launched a robo-Para planner, tool that provides retirement advice in less than two hours

making investment advice process easier. Department of Labor‘s Fiduciary Rule in the US,

imposed a sales compensation model restructure resulting in some financial advisors pulling

back encouraging adoption of robo-advice. South African insurtech Vitality, offers wearables

including Fitbit watch with health insurance policy and a fitness program that includes a 50%

discount on gym membership and uses customer health data to effectively provide advice on a

customer‘s lifestyle.
Automating and improving the claims process

Major pain point i.e. untimely processing and customer dissatisfaction in claim processing

again can have helping hand as AI. It can be used to provide better communication through

intelligent automation. We can extract predictions for claims based on information available,

assign complex claims to experienced adjusters, track claims leakage from audit process (via

claim investigation, evaluation, and settlement).

Ex - In 2017, AI was used for triaging claims based on the assessment of images. After viewing

images of vehicle damage, AI Approval makes an assessment within seconds, reviewing and

authorizing Repair estimates, ensuring reliability and speed throughout the claims process.

Fighting insurance fraud

In Property and casualty insurance industry, fraudulent claims continue to be a sore point. AI

has the capability of detecting anomalies in insurance claims by suggesting fraud based on

patterns of claims, customer interaction and behavior. ML can be optimal to identify those that

warrant deeper investigation.

Shifting cyber insurance to solutions

Cyber Insurance is growing field with coverage type going up by 36% in 2016 (Aon). AI can have

huge implementation in this sector from predicting risk more accurately than actuary to

understanding the new vulnerabilities in the system infrastructure and processes. Cyber

security startups can help insurers to underwrite cyber policies by offering cyber liability rating.
This will increase Cyber Insurance penetration while bolstering insurers‘ capabilities in this

remit.

Ex - BitSight builds cyber risk model based on multi-sourced data with breaches and

assessment of companies‘ infrastructures to help insurance companies understand

vulnerabilities in the system infrastructure and processes. BitSight monitors user behavior. In

2018 Cisco, Apple, Allianz, and Aon teamed up to develop more sophisticated cybersecurity

insurance solutions that combine coverage, prevention, detection, and response.

Quantifying the risk of autonomous vehicles

Motor Insurance for AVs (Autonomous Vehicles) predicted 60% drop due to increased safety,

automation, alerts, and crash avoidance systems (KPMG). Now instead of vehicles software

failure, manufacturing defects, and cyber risks will be insured further leveraging AI for risk

prevention. How massive data current statistical models can‘t work so we need to introduce

AI to underwrite, assess the risk & future development of AVs.