Insurance companies are facing new challenges as consumers increasingly turn to online payment options such as digital wallets. Consumers now expect insurance companies to provide instant payouts, but many insurers still rely on paper cheques. In fact, close to 50% of insurance policyholders across the globe are still getting paid via paper cheque, despite only less than 20% actually preferring being reimbursed this way (PYMNTS). This article will guide you through the transformation of claims processing over the years and how you can adapt to the new pay-me-now world.
In the past, manual claims processing was the standard. Insurers would send out paper cheques, and policyholders had to physically visit their banks to deposit the cheque into their bank accounts. That meant payment processing time could take days. But the long waiting times aren’t the only disadvantage of paper cheques: these often make up for a much more cumbersome process with higher fraud risk and higher transaction fees.
Collecting and processing paper cheques is a highly costly process for any business. According to the AFP 2022 Payments Cost Benchmarking Survey, the average cost of issuing paper cheque payments sits between $2.01 to $4.00. Recipients also incur an average cost of $1.01 to $2.00 to process and deposit their cheques. And that isn’t all, as secondary costs can take the total cost to about $15-25 per cheque, with the number going as high as $50 in some cases (Payments Canada).
Aside from the cost side, cheques also may take about 15 days to clear. This is far from ideal for customers that need the funds in their accounts urgently and may compromise their satisfaction with the service provided. Below are some of the most significant downsides of using and offering paper cheques as part of the claim payout process:
Paper cheque payments are slow and far from convenient, so insurers are keen on replacing these with e-cheques and other digital payments. According to a recent survey by PYMNTS, 67% of insurance carriers say they plan to use technology to improve payment processes within three years. Among these insurance companies, 64 percent say they’re upgrading because they want to be less reliant on paper cheques, and 52 percent are trying to cut down on their internal costs.
In the UK, the number of cheques has decreased consistently over the last two decades. According to Statista, in 2009, 1282 million cheque payments were made in the UK. This number went down to approximately 275.5 million in 2019.
With the fall of paper cheques came the rise of e-cheques. These are similar to paper cheques but processed entirely digitally. Therefore, no hardware is required, and the process is much smoother. Below are some of the benefits that e-cheques provide for both insurers and customers alike:
E-cheques are particularly advantageous for sectors that, like insurance, are pressured to deliver and pay out to their customers in the most seamless way possible. E-cheques are much more convenient for customers and enable them to receive funds faster. Regarding security risks, the steps in processing e-cheques are automatic and require no human intervention. Fewer people can access sensitive data, making e-cheques safer than physical cheques. As the process is fully digital and incorporates into the reconciliation process of each enterprise, insurers can also flag any suspicious transaction or detail in real time.
There are various types of insurance payouts methods, including push-to-card, bank transfers, e-cheques, and vouchers. Depending on the situation that your policyholders find themselves in, they may have a preference on how they get paid. For instance, when filing a travel insurance claim, policyholders may require a real-time payout as they may be in a foreign country and require the funds immediately.
In other situations, bank transfers, which usually take a few working days to be processed, may be a viable option. Despite there being various types of insurance payout methods available, insurers don’t typically have access to all of the payment methods, as this requires multiple integrations with different payment providers. Yet, being able to offer a wide variety of payout options is essential because each customer will have different needs.
While most sectors have already embraced new payment methods, paper cheques still account for a significant portion of payout transactions in the insurance sector. Insurance companies have been slow to adopt new payment methods, but coronavirus has sped up adoption across the entire industry. We have discussed the benefits of offering e-cheques when paying out to customers, but many digital payment methods are available. Let’s have a look at some of the benefits of digital payments:
One of the most significant benefits of adopting instant payments to replace cheques is the considerable cost reduction. According to a report by TATA Consulting Services, insurers can reduce 5% of their costs through digital payments in only the first six months. The report also estimates that the replacement of cheques will lead to USD 15 million in savings over a three-year period.
In addition, adopting digital payments for premium collections can reduce error rates and eliminate manual intervention from finance teams or external partners involved in payment processing and reconciliation. Reconciliation processes are often complex and lengthy, reducing insurers’ visibility over their cash flow. Digital payments are incredibly beneficial to improve this visibility.
Even though the digital adoption rate is usually higher with Millennials and Gen Z, digitalisation has become widespread across generations. Today’s consumers demand multiple payment options, hyper-personalized services, and support across the entire customer journey. Therefore, it is crucial for insurers to digitalise their payment systems and offer a broader range of digital payment options.
While instant payments are convenient, they come with some challenges too. Below are some of the challenges and potential opportunities that instant payouts bring:
Modern payment mechanisms are incompatible with the current legacy architecture that most insurers are relying on. Integrating with various payment providers is a very complex process that requires a lot of financial investment and long waiting times. Insurers are reluctant to modify their systems as they power the company’s entire operations. This incompatibility between systems and technologies makes it challenging for insurers to fully digitalise and optimise their payment operations.
Even though e-cheques are more prone to fraud, digital payments come with their own set of security vulnerabilities and risks that insurers need to pay attention to. Maintaining and updating systems is just one of the crucial procedures that insurers must go through to ensure that their in-house systems are protected.
Large amounts of real-time transactions may be a challenge in managing liquidity. Batch payment systems like the UK system BACS enable insurers to have predictability around their liquidity flows, which helps with liquidity management. Real-time payments make cash inflows and outflows more unpredictable because they can be processed at any point during the day.
To offer instant payouts to their customers, insurers are turning to technology. Some insurers are offering instant payouts through mobile apps. Others are partnering with third-party providers to enable instant payouts. Insurtechs like Imburse offer connectivity to the entire payments ecosystem, allowing insurers to offer instant payouts to their customers and increase customer satisfaction.
Partnering with a third party like Imburse makes the adoption of digital and real-time payments much faster for insurers. With Imburse, insurers don’t need to modify their legacy IT systems and can connect to any payment provider or technology through a single entry point to Imburse. Connections to providers and technologies take only a few weeks, as opposed to months, and are significantly cheaper too. Furthermore, third-party solutions have the in-house expertise to help insurers navigate the payments world and choose the most suitable payment provider to meet business and customer needs.
Imburse is a cloud-based middleware connecting large enterprises to the payments ecosystem, regardless of their existing IT infrastructure. Through a single connection to Imburse, enterprises can collect or pay out using various payment technologies and providers around the globe.
In a world where consumers’ payment preferences and technologies are ever-evolving, Imburse works with insurers to future-proof their payment requirements. Regardless of the business area, market, or requirements, Imburse will connect you to your choice of technology and provider.
Reach out to our team should you want to discuss how Imburse can help you. Our team is happy to show you what our platform can do for your business and offer you a free demo.