26 minute read
COVER STORY: Rise of the bots
the bots Rise of
Expect chatbots to pick up more of the grunt work, but there’ll still be a need for human advice.
By Angela Cuming
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.
March 2020 “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 everimproving 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.
March 2020 “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.”
HUMANS of
Andy on the left
Recipe for success Andy Rowe discusses his experiences in the insurance industry and his love for a perfect BBQ
Andy Rowe started in the insurance industry a few years after school, when he was looking for a role in which, in his own words, he could use his brain and work in a career that was interesting and rewarding.
After a variety of different roles across IAG for over 14 years, and a recent stint into the broker world as head of commercial for a large independent brokerage in Auckland, Andy has returned to NZI as the national broker partner, strategic growth and delivery.
“I spent a lot of time working with brokers from the NZI point of view, and I thought I had understood their role pretty well, but it’s not until you are on the other side of the fence and you get to really understand what the broker goes through and the additional pressure they face.”
“Now I have a new-found respect for what brokers have to go through to deliver the terms that we give them and a new understanding of what’s life like as a broker, which I will take with me into my new role.”
Understanding other points of view and processes are also a key element in another of his passions; barbecuing. He is part of an awardwinning barbecue team and competes in a North Island circuit.
For Andy Rowe, getting things right entails many hours of hard work,
March 2020 time and dedication – not unlike insurance.
“One of the hardest meats to cook is a brisket. If you get it wrong, it can be a difficult situation, but when you get it right it’s magical, and the best bite you will ever have.
“It’s a bit of an art to manage fire and smoke, and take a tough cut of meat to perfectly tender and delicious, after 8-10 hours of cooking.” Andy Rowe shares his passion for the barbecue among colleagues and brokers, and for him, the BBQ season doesn’t stop with summer, it’s dedication all year long.
“I’ve got five barbecues at home. All different shapes and sizes. They range from a really small portable charcoal BBQ to a 600 kg steel smoker, which I had custom built.”
After 15 years in insurance, balanced with his passion for barbecuing, Andy Rowe has no plans to leave the industry he loves.
“Brokers and underwriters are really good people. We all work hard and get to form strong relationships over many years. The public might not always see this, but we do make their world a safer place. The fact that you can see a disaster of any scale and know that people can rebuild their homes or replace their cars with our help. What we do really helps people’s lives”.
success
INSURANCE DESIGNED FOR YOUR BUSINESS
CUSTOMER AND CONDUCT: LESSONS, QUESTIONS AND FUTURE OUTLOOK
By James Brownell, director, insurance conduct lead, KPMG New Zealand
Following on from the Australian Royal Commission and subsequent New Zealand banking reviews, 2019 was a year of intensive focus from the Financial Markets Authority (FMA) and the Reserve Bank of New Zealand (RBNZ) on culture and conduct in the insurance sector.
The FMA/RBNZ’s review of life insurers in January led them to request both life and general insurers to undertake two specific activities: 1. An in-depth product review 2. A gap analysis against the Australian Royal Commission findings. This has resulted in a significant programme of work across the insurance sector.
This work needs to be considered against the backdrop of substantial regulatory change relevant to culture and conduct.
Amongst other reviews around insurance contract law and the role of appointed actuaries, two key changes include the introduction of a new
March 2020 advisory regime (Financial Services Legislation Amendment Act) and the Ministry of Business, Innovation and Employment (MBIE)’s review of the conduct of financial institutions and the introduction of a new conduct regime.
Under both of these changes, new licencing requirements for insurers and advisers will impact the way that the sector is regulated, introduce additional obligations for insurers and advisers and give the FMA more power to monitor and enforce against licencing obligations.
This will put the regulatory regime here more in line with frameworks in Australia and the United Kingdom, and will have a significant impact on manufacturers’ obligations both in terms of how products are designed and how customers are engaged.
In this article we will focus on the challenges and lessons learned so far from both the life and general insurance market, the questions
that organisations should be asking to ensure they have done enough to address regulators concerns and the future outlook for the general insurance market, including how conduct and culture should be integrated into insurers’ strategies going forward. LESSONS LEARNED FROM THE WIDER INDUSTRY
Recognising there are distinct differences between life and general insurance operations in terms of both product complexity and distribution, there are nevertheless important lessons to be learned from the life sector given they have been subject to direct reviews by the regulators and have therefore had a four month head start. PRODUCT REVIEW
New Zealand insurers have not been required to have formal or comprehensive product review processes, and some have relied on informal processes and discussion. As a result, the amount of work the specific product review requirement has entailed has generally been underestimated by the market.
Indeed, the RBNZ and FMA recently formally requested a large number of life insurers to re-submit their product reviews, because they were either incomplete or did not go deep enough in terms of identifying risks and issues, and/or investigating issues that had been identified.
This will be most relevant for general insurers with a large number of products and distribution channels, and where products have rapidly evolved over the last five years, meaning substantial legacy books. Organisations without appropriate data management and governance have struggled to pull together consistent and meaningful analysis across their product portfolios IDENTIFICATION AND REMEDIATION OF ISSUES
The regulators are realistic, and understand that organisations are not
perfect; therefore, where no issues have been identified, they are likely to be sceptical that the process has been rigorous enough.
Insurers need to be proactive in identifying potential issues. In some cases, executive teams may have overly positive or biased views; gaining independent feedback from front-line staff, mystery shopping and feedback through customer forums can be effective ways of demonstrating this.
Where issues have been identified, insurers typically do not have formal investigation or resolution frameworks so calculating customer impact and identifying root causes is incomplete and unsurprisingly progress in terms of rectifying issues has been slow or absent. This is demonstrated through examples of insurers knowingly sending out incorrect information to customers. There are plenty of case studies outside of New Zealand which demonstrate the importance of investigating and remediating issues quickly and efficiently in order to limit the longerterm negative impacts. SYSTEMS AND CONTROLS
The majority of issues we identified through working with our clients have not originated from bad intentions, but point to potential cultural issues around allowing systems and operational risk issues to continue unabated.
It is apparent that there has been some reluctance to invest in systems, to address known issues and a general lack of accountability for identifying and establishing controls to stop issues from continuing to occur.
A lack of appropriate consideration for operational and conduct related risks, including putting formal tolerances in place so that they can be proactively monitored and mitigated has also exacerbated these problems. OVERSIGHT OF INTERMEDIARIES
Any conflicts of interests created by commissions need to be proactively monitored by insurers, as it is apparent that soft commissions are still being used and are considered by the FMA and RBNZ as high risk.
In the general insurance market there are a wide variety of distribution channels and types of arrangements which has made investigation and oversight of these more challenging. The FMA and RBNZ have made it clear that the onus sits with the manufacturer to ensure customers are getting good outcomes from their products.
Expectations are that insurers understand the outcomes being delivered to customers by intermediary channels.
For agency relationships, where insurers only provide product design and pricing support and legacy arrangements, this has meant insurers have to take a different approach. Utilising data and analytics will help insurers to understand whether intermediaries are doing the right thing for their customers. WHAT ARE THE KEY QUESTIONS INSURERS NEED TO ANSWER?
Based on the work we have carried out in the insurance space, we have outlined the questions that insurers should be asking to understand whether they have done enough to change the way they are considering customer outcomes in their organisations.
How do firms ensure that they have identified all the culture and conduct issues that exist within their business? How are issues investigated and remediated within your organisation, what frameworks are in place to ensure these are carried out effectively? How do you ensure you get to the bottom of the issues identified to ensure they don’t happen again? How do you demonstrate that commissions across your portfolios are appropriate and do not drive poor customer outcomes? What kind of oversight is required / practical to ensure you know your products are being sold appropriately? What do you do when you identify misconduct by an intermediary? How do you know that the way your staff are incentivised results in good customer
March 2020 outcomes
Where does it makes sense to invest in appropriate data collection where capability does not already exist? How is culture and conduct being considered as part of your overall IT transformation? How do organisations gain comfort that data governance and quality in particular with legacy systems? How does the business manage its risks and ensure its control environment is operating effectively?
How are legacy portfolios reviewed when there could be knowledge and data gaps? What are the appropriate lead and lag metrics to monitor customer outcomes? How can the product review process be leveraged on an ongoing basis to ensure changes are having the desired effect?
FUTURE OUTLOOK
Based on initial feedback to life insurers and the legislation for a new conduct regime that has been fast tracked for implementation, it is clear that the focus on conduct and culture is here to stay and is likely to intensify as we move into 2020. CUSTOMER CENTRIC FOCUS AND MEASUREMENT
Understanding customers’ needs and customer outcomes is about more than culture and conduct, it is essential for an organisation to innovate and stay competitive in a rapidly changing environment. A more customer centric focus and an improved understanding of customers’ circumstances and needs will ultimately result in higher retention and sales.
Lack of investment in this is a double-edged sword - in an increasingly more connected and open world, negative outcomes can have a significant impact on an insurer’s reputation.
Appropriate measurement and reporting of customer outcomes is critical to enable strategic decision making; customers’ needs and financial performance should be synonymous. Use of advanced techniques for data analysis allows insurers to gain insights where data is unstructured or to identify trends and relationships that would otherwise not be possible. New Zealand banks and now insurers are developing customer outcome measurement tools and dashboards which have tolerances built in and allow appropriate ongoing monitoring, allowing insurers to be at the cutting edge of product design.
There will undoubtedly be challenges the insurance market need to face up to in the foreseeable future if insurers want to get ahead of the coming conduct regime and build culture and conduct into their strategic direction.
Insurers who are treating their conduct and culture programmes as a conduit for change rather than a compliance box ticking exercise are those who will have a competitive advantage over their competitors.
Are they Safe?
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Mary Jeane Askin | (09) 355 3066 maryjeane.askin@aig.com Denira Kusuma | (09) 355 3229 denira.kusuma@aig.com Grace Mason | (09) 355 3127 grace.mason@aig.com Veiko Termonen | (09) 355 3079 veiko.termonen@aig.com
INSURTECH CAN GIVE TRADITIONAL INSURANCE A LIFT
New technology can be a benefit, not a threat, to the industry.
By Gallagher Bassett
Insurers know their customers’ lives are being shaped and transformed by new technologies. These technologies are also rapidly transforming the insurance industry, which in undergoing an ecosystem disruption, largely caused by technologydriven competitors and new entrants. As the market changes, insurers are facing growing pressure to adapt and reinvent themselves. SHIFT FROM VIEWING EMERGING INSURTECHS AS OPPORTUNITIES RATHER THAN THREATS
The emerging insurtech (or “Insurance Technology”) industry, is gaining strong traction, with many start-ups developing new business models and enhancing customer experiences. PWC’s insurtech report highlighted that 56% of insurance companies surveyed felt that between 1% to 20% of their revenues were risk to InsurTechs.
Insurers are becoming increasingly aware of the opportunities of partnering with emerging insurtechs. Through strategic partnerships,
March 2020March 2020 traditional insurers attain economic benefits and overcome challenges that they have traditionally faced.
Insurtechs offer alternative ways of addressing customer needs, because of their data-driven experience models, agile structures, risktaking mindsets and streamlined operational costs. They also have inherent advantages to launch new business models that traditional insurance companies are unable to do internally.
Despite being digitally native and being able to face insurance problems without past assumptions, Insurtechs typically have limited knowledge of regulatory environment, financial strength and claims data to accurately price and underwrite risks.
Traditional insurers are highly experienced with concrete institutional knowledge of the industry. They are well aware of the common pitfalls and challenges of operating in the industry, and have extensive experience navigating complicated regulations that govern the sector. Insurers can therefore use their extensive industry knowledge to assist
InsurTechs to optimise their technology.
Strategic partnerships allows traditional insurers to focus on what they do best, insurance. Through the use of new technologies, Insurtechs can make insurers more efficient through use of new technologies and empower them to drive digital disruption.
Strategic partnership is the key for both traditional insurers and insurtechs to achieve success. HOW DO CUSTOMERS BENEFITS FROM PARTNERSHIPS BETWEEN INSURERS AND INSURTECHS ? Customers are becoming increasingly tech savvy and their expectations for insurers reflects this. With their digital expertise, i nsurtechs can help insurers leverage cutting-edge and emerging technologies to interact and reach customers where they are-mobile, online and 24/7.
Insurtechs have dramatically changed the traditional low-interaction model between the insurer and the customer.
With their expertise in emerging technologies, such as artificial intelligence (AI), the Internet of Things (IoT), blockchain, big data and analytics, insurtechs can offer solutions for the challenges insurers are facing in this increasingly competitive and digitised space. A strategic partnership allows insurers to leverage new technologies to enhance customer engagement and adapt their product offerings.
Insurtechs and traditional insurers, can combine their knowledge and expertise to improve personalisation of their services. This can be achieved utilising their understanding of customer needs and taking advantage of real-time data from connected devices, such as wearables. Through deepening relationships with their customers, a strategic partnership furthermore offer insights into risks and enables traditional insurers to base premiums on highly specific risk assessments. It also enables proactive risk mitigation services and the ability to provide timely care interventions.
A great example is Hiotlabs, a Stockholm-based insurtech that offers "prevention as a service" by using Internet of Things sensors to measure
temperature and humidity inside buildings, allowing early detection of water damage. CREATING NEW CUSTOMER TOUCHPOINTS AND REVENUE STREAMS
By utilising a collaborative model with traditional insurers using Application Programming Interfaces (APIs), new customer touchpoints are created. By offering a variety of insurance apps, APIs can assist insurers to deliver seamless customer protection and subsequently access new revenue streams.
An example of successful integration of APIs was achieved by Matric. They use API to integrate with third-party mortgage platforms and home insurers’ systems. When clicking the "request quote" button, already 95% of the details required to offer a home loan quote are sent out automatically to the carrier. This means that the customer only has to answer a small number of additional questions for a near-instant quote. ASSISTING INSURERS TO STREAMLINE PROCESSES
Partnering with insurtechs can allow traditional insurers to streamline their processes and achieve operational efficiency through use of technology, for example, by implementing cognitive document processing. Insurtechs are beginning to offer ways to utilise Artificial Intelligence and robotic process automation to automate elements of insurance value chain processes.
For example, Expediente Azul, a Mexico-based insurtech, offers a mobile and web tool that assists insurers to capture, analyse and store insurance claim documents in the cloud, therefore managing end-to-end insurer and customer interactions during claims processing. Blockchain technology is another key disrupter as it allows secure, seamless and transparent data sharing and storing. This can facilitate more effective fraud prevention and detection. In addition, blockchain-based smart contracts can lead to instant processing of claims and subsequently quicker payouts. This allows traditional insurers to streamline claims management. FACILITATING AN EFFECTIVE PARTNERSHIP
The growing interest in InsurTech partnerships is reflected by Accenture research, which found out that 44% of insurers globally intend to pursue digital initiatives with insurance industry start-ups over the next two years. They also discovered that 31% intend to work alongside start-ups from outside their industry.
The insurance industry must be proactive and demonstrate a willingness to engage with insurtechs to create a mutually beneficial and sustainable model.
For insurtechs, accessing traditional insurers’ extensive customer bases, industry knowledge and market experience is the key to scaling their offerings.
Through effective collaboration, strategic partnerships can allow traditional insurers to attain better customer satisfaction and retention, new revenue streams and a streamline process that allows for operational efficiency.
Nevertheless, it’s vital for the insurer to find the most appropriate strategic insurtech partner. This may be particularly challenging as technology is not their area of expertise.
The key is to therefore find a partner with a capacity to understand their customer journey and have the ability to work together long-term.
Big changes are coming to our industry. Are you equippedto weather them?
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