In this piece Scott Dawson, Head of Sales and Strategic Partnerships at DECTA, wonders if AI can help insurance brands cope better with inflation and a potential recession.
With the UK economy facing a potential recession, a number of challenges, including high inflation, rising interest rates, and the ongoing war in Ukraine, insurance businesses in the country must be prepared to weather the storm. The upshot is that just Googling the word “recession” yields an onslaught of articles predicting that one is inevitable, but while trendy new technologies like NFTs are unlikely to provide a solution, artificial intelligence (AI) has the potential to help businesses mitigate the impact of a recession by automating tasks and saving money. However, it is important to separate the hype from the reality and understand AI’s limitations, as it can erode consumer trust if not implemented carefully.
Here, I’ll explore the state of the economy, the cash flow crisis that businesses are facing, and how AI and alternative solutions can help insurance businesses survive, thrive, and maintain consumer trust during a recession.
Today’s economy and the threat of recession
While recessions can bring significant challenges for businesses of all sizes, the insurance industry is particularly vulnerable, as declining consumer spending and rising unemployment can lead to a decrease in demand for insurance products as purse strings tighten. Cash flow is fundamental to the success of any business, but it can be difficult to maintain during this kind of economic downturn.
Reduced revenue, delayed payments, and increased expenses can also put a sizeable strain on a company’s finances. According to one estimate, companies with annual recurring revenue of more than $100 million spend around 20% of that revenue on ‘General and Administrative’ expenditures, which could include anything from office space to accounting and payroll. There are also direct payroll expenses: if, for example, the company has a telephone helpline that needs to be staffed with customer service representatives, then this department and its attendant costs will grow with the company. You may question whether adding another customer service rep for £20,000 per annum is going to add £20,000 of value compared to keeping that £20,000 as cash in case of a downturn.
One obvious way to improve cash flow is to reduce costs. AI can help businesses do this by automating tasks and improving efficiency. For example, AI-powered chatbots can handle customer service inquiries, freeing up human representatives to focus on more complex tasks. AI can also be used to automate back-office tasks, such as accounting and payroll.
On top of reducing costs, AI can also help businesses increase revenue. For example, AI-powered marketing tools can help businesses target their marketing campaigns more effectively, resulting in more sales. AI can also be used to develop new products and services that meet the needs of customers in a more efficient and cost-effective way. AI has the potential to significantly improve cash flow for businesses of all sizes. By automating tasks, improving efficiency, and reducing costs, AI can help businesses free up resources that can be used to invest in growth opportunities and weather economic downturns.
Generative AI is poised to have a significant impact on the insurance industry, bringing significant benefits in areas such as fraud detection, customer service, and operational efficiency. Large language models, such as Chat GPT, can analyse massive datasets to detect patterns and anomalies indicative of fraudulent activity. One of the most promising applications of AI in the insurance industry is underwriting. AI-powered underwriting systems can analyse large amounts of data to identify patterns and risks, enabling insurers to price policies more accurately and reduce fraud.
In addition to its operational applications, AI can also be used to improve customer service. AI-powered chatbots can provide 24/7 support to customers, and AI-driven data analysis can help insurers to better understand their customers’ needs and preferences.
However, it is important to recognise the limitations of AI. These systems are still in their early stages of development and are not yet able to replicate human judgment and intuition. Additionally, implementing AI systems can be expensive and complex.
Another key challenge is trust. While the public is increasingly aware of AI, there is still a great deal of scepticism about its capabilities and implications. Insurers must carefully consider how to implement AI in a way that is transparent and ethical. Despite the challenges, AI has the potential to transform the UK insurance industry. Companies that embrace AI early are well-positioned to gain a competitive advantage and deliver better value to their customers.
AI is a promising technology, but it is not a silver bullet for all business challenges, especially during a recession. In many cases, focusing on improving existing systems and processes can be just as effective, if not more so, at saving money and ensuring the smooth operation of a company.
One key area where businesses of all kinds can make significant improvements is in their payments systems. Inefficient or outdated payment processes can lead to unnecessary costs, delays, and errors. Bespoke payment systems offer a unique opportunity for businesses to leverage technology to their advantage.
By tailoring payment solutions to their specific needs, businesses can optimise their payment processes, reduce transaction costs, and enhance customer experience. Bespoke payment systems are designed to adapt to the unique needs of each business, ensuring that payment workflows are efficient and reliable. Additionally, streamlining payment operations can improve cash flow management and reduce the risk of financial disruptions during economic downturns.