The insurance industry, traditionally a brick-and-mortar pillar of financial stability and protection for millions, is changing dramatically. Rising consumer expectations, digital-first experiences, and technology developments are all forcing insurers to reshape and modernize their customer service strategies.

In this article, we’ll dive into the present state of insurance customer service, industry challenges, AI, outsourcing solutions, and strategies to improve the customer experience.

The Competitive Insurance Marketplace

The insurance market has two main sectors: Life and Health (L&H) and Property and Casualty (P&C).

L&H products, including health coverage and life insurance, provide a financial defense should illness, death or injury strike. P&C insurance protects from financial loss connected to liability or property damage—home, auto, renters, flood, etc.

Both sectors are competitive. Traditional players such as MetLife, Prudential, Allstate and others are well established. But disruptive, digital-first "Insurtech" businesses like Lemonade, Root, and Oscar are rising due to their appeal to younger, tech-savvy consumers. These newcomers are changing the industry by providing faster, more streamlined services using AI-driven platforms.

To stay competitive, traditional insurers are investing heavily in improving the customer experience (CX) and digital transformation to offer a seamless experience across channels. And the blending of automation with the human touch is becoming more prevalent.

Customer Acquisition and Retention Challenges

One of the most critical issues for insurance companies is the acquisition and retention of customers. Policyholders expect clear and concise terms, competitive premiums, and for their insurance carriers to be accessible and responsive. Many customers are also looking for carriers that offer self-service solutions that are efficient, effective and convenient.

Direct-to-consumer (D2C) platforms, social media marketing, and search engine optimization (SEO) tools enable insurers to interact with consumers at several touchpoints. However, insurers must constantly refine these techniques to maintain relevance and competitiveness.

Retention is equally as important as acquisition especially in a competitive marketplace. Today's customers want on-demand, customized services. Although self-service solutions, including policy management and online claims processing, are becoming standard, many policyholders still want the human touch.

When it comes to the insurance carrier’s customer support and call centers—customers expect and often demand a reachable, well-trained, and knowledgeable customer advocate. Customers also expect a seamless experience whether it’s via voice, chat, mobile, email or social media channel. 

The Role Call Centers Play for Insurance Companies

It is safe to say that insurance can be an “emotional” product for many consumers. And such a product or service requires equally compassionate customer service, available 24-7, 365 days a year. Even as self-service alternatives proliferate, we find that in industries such as insurance (and others), the human element is essential. 

For insurance carriers, call centers are critical throughout the policyholder lifecycle from inception to servicing, renewals and beyond. And for virtually every contact type including but not limited to First Notice of Loss (FNOL), policy clarifications, sales, claims, benefits verification, and billing inquiries.  

Natural disasters, pandemics and other events will drive up contact volume, requiring the insurance carrier to be prepared with “surge capacity” – call center staffing to support planned and unplanned spikes in volume. For example, customer calls skyrocketed across sectors, including insurance, during and following the COVID-19 epidemic, with some industries experiencing as much as a 300% spike.

A good example of planned surge capacity is during Open Enrollment which requires internal and outsourced call centers to go from steady state staffing to upwards of 3 x, 5 x and sometimes 10 x staffing increases to support the significant burst in contact volume, during enrollment season.

Another area of the insurance realm is the “producer” channel or, independent insurance agents that sell policies direct-to-consumer (DTC). For independent insurance agents, missed calls to their office(s) are missed opportunities with existing and new policyholders. Therefore, relying on the carrier’s internal or outsourced call centers during and after-hours is essential.

Outsourcing and the BPO Solutions

Insurers are increasingly turning to business process outsourcing (BPO) to handle these pressures, for contact types that require both licensed and non-licensed call center agents.

Traditionally, insurers outsourced mainly voice call center needs including inbound and outbound service, sales and retention. Insurers also traditionally outsourced support only for the end consumer or policyholder. Now, insurers are outsourcing a wide spectrum of roles in support of policyholders and independent insurance agents and insurance agencies.

There is a difference in the contact type, training, call center agent skill set, and the overall support apparatus as it relates to the policyholder or B-T-C (Business-to-Consumer) channel, vs. the independent insurance agent/agency or B-T-B or (Business-to-Business) channel.

With cost pressures rising, and BPO services continuously maturing and evolving, insurers today are looking to expand outsourcing across multiple touchpoints and roles. Beyond voice services, more insurance companies are outsourcing:

• Back Office (Data Entry, Data Labeling, etc.)

• Live Chat

• Email

• SMS

• Social Media 

• Professional Services (HR, Legal, Financial, Accounting, Marketing, etc.) 

• IT (Software, Data Analytics, etc.)

• WFM (Workforce Management)

• Quality-as-a-Service (QaaS) - Quality assurance monitoring and management

• Fraud Prevention

• Case Management

• Underwriting

Working with BPOs allows insurance companies to expand service and sales opportunities, de-risk and diversify, reduce operating costs, tap into new sources of human capital, and deliver on customer service promises. All can be achieved simultaneously, if the insurer selects and partners with the right BPO companies.

When choosing a BPO partner, insurers should prioritize organizations with deep industry knowledge, innovation, robust security and compliance policies. BPOs should be able to rapidly grow, provide adaptable workforce options, and easily interface with insurers' systems.

Traditionally, insurers outsourced onshore (within the USA), but over the past 5 years there is a major shift to lower cost – high quality nearshore and offshore outsourcing destinations, especially for non-licensed work.

There is further diversification within the nearshore/offshore strategy with insurers looking beyond mature outsourcing markets such as the Philippines and India, to emerging markets in Africa and other destinations that offer less saturated locations, with talented and reliable employees seeking a career in tech enabled sectors such as BPO.

Licensed Insurance Agent Call Centers and Challenges

The general rule is that a call center that sells, supports, negotiates, quotes or even services insurance products, may be required, by state, to be staffed with licensed insurance agents located within the United States. Licensed agent insurance work cannot be outsourced to nearshore or offshore countries.

Licensed insurance agents working in call centers are customer service and/or sales professionals similar to non-licensed call center agents. However, a licensed insurance agent has an elevated qualification level, having obtained an insurance license. Licensed agents can handle all contact types including sales, claims, servicing, case management and other conversations and interactions that require the customer to speak with a licensed professional.

Here is some insight on the challenges faced by insurers and BPOs relating to licensed insurance agent call centers:

1. Limited Availability of BPOs Offering Licensed Agent Services

The pool of call center outsourcing companies (BPOs) equipped to offer comprehensive licensed agent services is relatively small. While many BPOs can handle routine non-licensed customer service tasks, only a select few have invested in building and maintaining a scalable network of licensed insurance agents.

As we stated, given the size of the BPO industry and the surplus of “vendor” options, it is unsurprising that there is a finite number of BPOs that offer a scalable and robust licensed agent solution. Therefore, insurance carriers will look to these BPOs, especially for surge capacity, growth, in-depth insurance industry vertical knowledge, innovation, value-added tools and advanced business intelligence.

Again, given the high costs and regulatory complexities, not every BPO is capable of or interested in making the resource investment required for robust licensed agent call center services.

2. Licensed Agent Costs

Licensed agent outsourcing costs are significantly higher than non-licensed work (whether it’s insurance or other industries). Dozens of line items must be included in calculating a BPOs cost structure which only increases when you layer in the significant costs associated with licensed agent operations.

For example, licensed insurance agents command a higher base and incentive package on par with industry standards, and this is reflected in total outsourcing costs. Not to mention the heavy cost of licensing itself, training, continuous education, etc.

In raw numbers, and by way of example, the average hourly rate (contracted between client and BPO for outsourcing services) today for a U.S. based (onshore) customer service agent can range from $33.00 - $39.00 per hour depending on many variables. However, the average hourly rate for U.S. based licensed insurance agent services is in the range of $48.00 - $65.00 hour depending on many factors including agent skill sets, contact volume, headcount required, staffing models, type of license, number of licenses per state, steady state vs. seasonal ramp costs, licensing costs (paid by the BPO or insurance carrier), technology, value added tools, in-center vs. remote, and whether the contracted rate between insurance carrier and BPO is based on a staffed (payroll) or productive (production time only) hourly rate.

BPOs must also invest in training and infrastructure that ensure compliance across multiple states. Training programs must be updated regularly to reflect changes in insurance laws requiring ongoing investments in professional development. According to industry estimates, training a licensed agent can cost anywhere from $4,000 to $6,000 per agent, depending on the complexity of the licensing process and the states in which they operate.

3. Regulatory Hurdles and State-Specific Complexity

 Agents must be licensed in their home state and every state where they provide support, making multi-state operations particularly cumbersome. BPOs that offer large scale licensed agent services must have an internal “licensing department” and entire teams dedicated to managing and monitoring state-by-state agent licensing, regulation and compliance. Licensing education, and examination rules are somewhat different across states. These regulations are unique, making it challenging for BPOs to streamline operations across state lines. In states with particularly stringent requirements, such as New York or California, agents must complete additional coursework or pass more rigorous examinations before legally selling policies or handling claims.

According to Agent Methods, an insurance industry technology company, there are more than 1.5 million licensed insurance agents in the U.S. However, these agents are not evenly distributed nationwide, further complicating efforts to provide uniform coverage in nationwide call centers. Some states have more licensed agents, while others face shortages, especially in rural areas.

AI in Insurance Customer Service

Artificial intelligence (AI) is transforming the customer service experience across all industries, and insurance is no exception. A report from workforce company EY found that 42% of insurers are investing in AI use, and 57% are planning to invest.  

AI helps companies cut costs and simplify procedures. AI-powered chatbots, virtual assistants, and automated FAQ systems are standard options for managing regular queries, policy updates, billing questions, and FNOL submissions. By automating repetitive tasks, AI frees human agents to concentrate on more complex problems, enhancing operational effectiveness and customer happiness.

AI-driven systems can, for instance, instantly redirect calls to the relevant department, identify trends in consumer inquiries, and cut resolution times.

These two examples provide proof of the ROI benefit that AI brings to the industry:

• One insurer experienced a 113% productivity uplift in their underwriting teams and a reduction in SLA quote turnaround time for strategic partners from 24 hours to 2 hours.

• Since implementing AI predictive modeling, another insurer decreased the time to policy issuance by 20% for applicants in the healthiest risk class. The number of applicants declining to purchase policies also reduced by 25% when the decision was made by a predictive model compared with traditional underwriting.

Nevertheless, the personal touch is vital for high-stakes claims or policy debates. Many policyholders would rather interact directly with a human agent in difficult or emotionally charged circumstances, so artificial intelligence should enhance rather than replace human agents.

Challenges of Seasonal Staffing: Open Enrollment Period (OEP)

As stated, the Open Enrollment Period (OEP) presents a significant challenge for insurers and BPO companies. Call volumes surge as customers enroll, change, or update their insurance. BPOs must scale quickly to satisfy demand, recruiting more licensed and non-licensed for a seasonal ramp.

Scaling for OEP creates operational challenges since BPOs must quickly ramp up and then scale down once enrollment ends. As we say here at CustomerServ, “OEP isn’t for every BPO”. Especially when contact volumes require the BPO to quickly ramp from steady state staffing to upwards of 3, 5, even 8 x growth, then back down to steady state. Many BPOs will not take on OEP because they prefer steadier volumes and, they do not have the appetite to deal with the challenges associated with repurposing or laying off employees—sometimes hundreds after OEP ends.

It's no surprise that only a select group of BPOs are go-to providers for OEP. These groups have the experience, depth, foresight and operational expertise to consistently deliver seasonal ramps successfully, year over year. 

Emerging Trends in Insurance Customer Service

As the insurance industry continues to evolve, several trends are shaping the future of customer service:

• Personalization through Data Analytics: Big data and predictive analytics enable insurers to offer personalized products and services based on customer behavior. This extends to customer service, where analytics can help predict customer needs and provide proactive support.

• Internet of Things (IoT) in Insurance: IoT devices, such as connected cars or smart home systems, facilitate usage-based insurance models. These devices can also streamline claims processes by automatically initiating claims in the event of accidents or damage.

• Blockchain for Transparency: Blockchain technology promises to reduce fraud and increase transparency in claims processing by providing a secure, immutable record of transactions.

• Voice Assistants and Natural Language Processing (NLP): Voice technology is becoming increasingly sophisticated, allowing insurers to handle routine inquiries and claims via voice assistants. NLP enables these systems to understand customer intent and provide accurate, timely responses.

• Emotional AI in Customer Interactions: Emotional AI can detect customer emotions during interactions, allowing agents to respond empathetically. For example, an AI-powered voice assistant might transfer a stressed or upset caller to a human agent for personalized support.

The Future of Insurance Customer Service

In the coming years, industry analysts estimate that more insurance companies will adopt an ecosystem approach by partnering with insurance business process outsourcing providers to deliver seamless customer service solutions, greater efficiencies, speed to market and advanced technology.

Insurance customer service of the future will be based on a perfect fusion of human sensitivity and technology. Insurers can satisfy changing customer expectations today by using AI, outsourcing solutions, and tailored service models while increasing operational effectiveness. Those ready to change and support these new trends will be best suited to survive in a competitive market as the sector innovates.