The next decade will mark significant changes in the insurance industry, with insurers working overtime to rebuild trust and keep customers happy. The key to succeeding in those goals may all come down to replacing call centre staff with fully automated chatbots, one commentator says.

Chatbots are computer programs or simply artificial intelligence (AI) systems that can conduct natural-sounding conversations with humans.

Due to rapid growth in technology, chatbots have recently made great strides in the insurance industry and before too long will be a common feature, say experts like Dr Michael Naylor, a senior lecturer at Massey University. 

“By the end of this decade if an insurance company isn’t using chatbots that company will cease to exist,” he says.

Chatbots are perfectly aligned to the insurance industry because they can provide customers with efficient service when responding to quick and common requests, such as passwords, policy copies, and billing questions. 

Chatbots can speak to and understand people to a degree that feels nearly human, allowing them to personalise and automate multiple processes and enhance the relationship between the insurer and the policy-holder. 

“Advances in technology mean that customers would not be able to tell that they were not speaking a person on the other end of the phone,” Naylor said.

“It means an insurance company will be able to handle roughly 95% of customer inquiries without actual staff.”

So, what would that mean for insurance companies?

Lower operating costs for one thing.

“One way insurance companies are going to be able to survive in an increasingly competitive market is to have less staff and slowly reduce the firm down to a software base,” Naylor said.

And while chatbots were expensive to set up the cost was more than offset by their long-term benefits, he said.

He points to what happened after the 2011 Christchurch earthquake as an example of where chatbots could have been of use.

“One of the main problems with Christchurch both for the insurance companies and the EQC was the sheer amount of work they had to do versus the amount of work they actually could do,” Naylor said.

“It was a case where EQC had 20 staff, mainly financial people, and how do you deal with 40,000 upset and stressed customers all at the one time? You can hire extra people but they have to be trained up properly, but chatbot software can cope with one person or 10,000 people, it makes no difference, even in times of natural disasters the likes of which New Zealand is no stranger to.”

Would a customer know they were not speaking to an actual person on the other end of the phone line?

Naylor said they would have no idea.

“There’s something called a Turing Test, which means can you tell if you are talking to a computer, and in terms of voice codes no you can’t,” he said.

“I mean when you think about it people think about a computer being monotone and with words evenly spaced and the like, so that’s what I mean by imperfections. When you speak to a chatbot there’s not that robotic voice.”

That’s not to say chatbots will be infallible and never make a mistake.

 “Yes, they will make mistakes but if you have a worldwide firm, once you make the same mistake say 20 times the software person picks it up, amends it or changes it,” Naylor said. “The same mistake will have to made enough times for the computer to learn it’s a mistake, but they will be able to recognise the pattern and amend it.”

But that’s not to say human voices will become entirely extinct from insurance companies and insurance broking.

“There will always be times when you need a human, a time when the chatbots can’t cope,” he said.  “But part of that has to be for the computer to recognise that and to pass the customer on to a human worker. And you may not recognise that you were talking to a computer and have been transferred, that’s how good the chatbot will work. However, the human that the call is transferred to should have on their screen all the information which the chatbot has already put in.”

He said brokers who were purely transactional would disappear. “Software can offer great generic advice and can even customise it. However any adviser will tell you that you can provide all the rational in-the-interests-of-the-client advice you want but clients often do not follow it. Software cannot currently offer the emotional support and interpersonal skills required to ensure that clients follow through on the advice. So advice will survive.”

Some advisers could use software to help their businesses and cut administration, he said. “Broking will disappear but advice will flourish… advisers will do better than insurance companies. The top third of advisers will make a lot more money. The bottom third, who struggle with using software, will face rising costs and competition from ever-improving roboadvice.”

Another way chatbots may help is when a customer lodges a claim and they must provide information about what happened, say, in a motor vehicle accident.

“Currently what happens is you log in and write down what happens, like ‘my car was coming down the road and hit another car’,” Naylor said. 

“But if you can write it in why can’t you talk it in? I mean if you talk to most kids below 10 years of age, they prefer to talk with their computers rather than type.”

The rise of chatbot technology would happen sooner than people might realise, he said.

“Lots of firms already use basic versions of chatbots but really good chatbots are about two or three or four years away,”. 

Customers will almost certainly not even be aware of the change-over, Naylor said.

“What they found particularly with insurance  in Christchurch is that the multinational firms moved their call centres to abroad but people in Christchurch weren’t prepared to talk to someone in the Philippines or Egypt, they wanted to be talking to someone would have some understanding of what they were going through, but we simply didn’t have enough people to be doing that.”

But chatbots have a way around that, he said, with the ability to change the recorded voice’s accents and tones. So, for instance, a company with a physical presence in New Zealand can use a chatbot voice that has a Kiwi accent to alleviate any concerns customers may have about speaking to an overseas call centre. 

But it gets even more sophisticated from there.

“And then of course you start to get the feedback like does a young female get a better response than an older female or an older male or does this accent or that accent get a better response,” he said.

“So, you can actually analyse the voice of the customer who is calling the company and give back to them a voice they will respond to in a positive way.”

And the whole point of chatbots was not just to cut operating costs but to guarantee survival by moving towards a much more customer-focused way of doing things.

“It’s all about feedback, what customers respond to and what they like,” he said. 

“In the past insurance companies have done customer service very badly and therefore the insurance industry had this idea that insurance had to be sold but that no one wants to talk about it when in actual fact American insurance firms are showing that it is actually just bad customer service that puts people off.  So, if you approach selling insurance by giving good customer service then customers will start to recommend insurance companies to their friends.”

The historical problem had been customer service had been expensive for insurers to get right, Naylor said.

“So, companies have been focussing on underwriting and keeping costs down instead, and while software has a very high fixed cost to install but once it’s in the cost to customise a chatbot to respond well to customers is very low. So, the insurance companies that do well will be the companies that actively use this type of technology going forward.

“To put it frankly in 10 to 20 years’ time unless you are an insurer that is making your customers happy you won’t be in business.” 

One insurer that has been quick on the uptake of chatbots is Tower Insurance, which recently announced a $47 million investment in a new technology platform.

 “Digital is the way of the future, and our new platform is completely unique in the New Zealand market, removing complexity internally, and for customers,” Tower Insurance chief executive officer Richard Harding told the Insurance Council of New Zealand late last year. 

“The key enabler for our strategy is a technology platform that allows us to deliver something genuinely better to customers.”

The company has since introduced “Charlie the Chatbot” to its customers, a smiling cartoon robot that greets you when you file a claim via the company’s website. 

Charlie promises to provide customers a “quality product and service” and an “amazing claims experience”.

“Customers are increasingly looking for convenience, choice and communications on their terms,” Tower’s chief customer officer Michelle James said. “Many are becoming super comfortable engaging with companies through online chat and chatbots for simple answers, and it’s no different with their insurance provider. It saves them time, puts the control back in their hands and allows them to multi-task, and get on with the things important to them.” 

Charlie is Tower’s “first small step” towards AI, James said.

“And we have big plans for Charlie too.”

Given the sheer volume of customer data chatbots will allow insurance companies to collect, the long-term focus of insurers needs to be making sure customers trusted the company they have taken out a policy with, Naylor said.

A similar sentiment was recently made by Harding, who said the insurance industry needed to increase transparency and rebuild trust. 

“As these systems evolve companies will be wanting more and more customer data, particularly with  something like health insurance where they will want to be able to, say, link to that person’s doctor, and that will only be possible if there a person absolutely trusts their insurer. They will also have to trust that their insurer’s system won’t be hacked, so companies will really have to have top-class security.

“It really is all about trust,” Naylor said.

“The customer has to be okay with handing over more and more confidential data because what the insurer gives back to them will be worth that trade-off.”

March 2020

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