Customers lose trust in AI in regulated industries

Smart Communications has published research showing rising customer dissatisfaction with business communications and lower trust in AI across regulated industries. The study surveyed more than 4,000 consumers worldwide.

The findings point to a widening gap between corporate investment in AI and consumer confidence in how it is used, particularly in areas involving personal data, service interactions and formal communications. The research covered financial services, insurance, healthcare and government.

Among Australian respondents, 73% said they would switch providers if communications failed to meet their expectations, compared with 63% globally.

Satisfaction is also slipping. Only 52% of consumers globally rated the communications they receive as good or excellent, compared with 56% in Australia. That marked a 10-point year-on-year decline, with insurance recording the sharpest fall to 50%.

The study found that communications now directly affect how customers view organisations. Globally, 85% said communications shape how they feel about their favourite brand, rising to 93% in Australia.

AI concerns

Confidence in AI's role in customer experience has weakened. Consumer confidence in AI's ability to improve customer experience fell to 56%, down five points from the previous year.

Trust in AI to manage personal data securely also declined, while concern about weak human oversight increased. Concern about the lack of human control rose by four percentage points globally, with Baby Boomers recording a 10-point increase.

Support for AI in specific uses also eased. The share of consumers who valued AI-powered financial advice was 44%, while 45% valued AI-suggested insurance plan changes and 46% valued AI health recommendations. Each measure was down from the previous year.

At the same time, consumers are asking for more transparency. Most respondents said it was important for companies to disclose when AI was being used in interactions, with Australia among the markets reaching 90% on that measure.

Trust varied sharply by age group. More than half of Gen Z and Millennial respondents said they trusted companies to use AI responsibly, compared with 30% of Baby Boomers. Confidence that AI would improve customer experience was highest among Millennials at 67% and Gen Z at 65%, but dropped to 42% among Boomers.

Process failures

The research also highlighted persistent frustration with forms and data collection. Globally, 61% said they would end a relationship with a company if the data collection process was too difficult, rising to 75% in Australia.

Younger respondents showed less tolerance for friction, with that share rising to 69% among Millennials and 66% among Gen Z.

Many respondents also said they still have to repeat information when moving between channels or speaking to different representatives. Globally, 48% said this happened sometimes or always, compared with 62% of Australian respondents.

In Australia, 95% said seamless carry-over of information across channels was at least somewhat important. The gap between that expectation and actual experience points to problems in how customer service systems are joined up.

Unclear communication was the most common reason consumers abandoned digital channels and sought help from customer service teams. Across age groups, industries and regions, 43% cited this issue.

That has implications for organisations with large contact centre operations, as service failures in digital journeys can push more people towards costlier human-assisted support.

Leigh Segall, Chief Executive Officer of Smart Communications, said the results showed companies were under pressure to improve the quality and clarity of their interactions with customers.

"This research indicates that organisations are reaching a tipping point. Customer expectations continue to rise, but many businesses are struggling to keep pace. Consumers are telling us they will switch providers when communications fall short or break down across channels, and they are becoming more selective about how and where they trust AI. For regulated industries, where interactions often involve healthcare decisions, insurance claims, financial guidance, or government services, the stakes couldn't be higher. The organisations that succeed will be those that simplify complex interactions, apply AI responsibly and transparently, and create experiences that build trust at every step," Segall said.

Amy Machado, Research Director at IDC, said the data reflected a broader shift in how customers judge digital services.

"What we're seeing here is a transition from digital adoption to digital expectation. Customers are no longer impressed by the presence of AI; they're judging how well it works for them," Machado said.

She said many organisations were still trying to meet new expectations with older systems and disjointed processes.

"The challenge is that many organisations are still trying to meet modern expectations with legacy systems and fragmented processes. The winners will be those that unify customer experiences, apply AI responsibly, and build trust through every interaction," she said.