In our daily lives as consumers, we expect digital payment options to be available almost everywhere. This applies not only to how we pay for products and services but also to how we receive money. It’s not surprising that insurance customers are progressively anticipating multiple avenues to pay their premiums and receive claim payouts. The huge impact of this option on the customer experience means for carriers, digital payment processing isn’t a nice-to-have – it’s imperative.
Importance of Digital Payments
Research from various sources confirms the significance of digital payments for customers. The majority of consumers are currently combining a digital or mobile wallet with online banking, a trend that extends to millions of households in the US without financial institution accounts. Digital payment options heavily influence our purchasing decisions, wielding the power to impact a carrier’s ability to retain its customers.
Benefits of Digital Payments
Digital payments are not only beneficial for customers; they also have a positive impact on a carrier’s bottom line. The complete cost of paper checks is understandably challenging for carriers to measure because the expenses associated with personnel processing, printing, and postage are incurred across multiple business units. Conservative estimates suggest that a paper check costs 10x more than a digital transaction. CFOs at insurance organizations designate their investment in digital payment solutions as a driver for improvements in their working capital.
Reducing Risk and Challenges
Digital banking capabilities are being enhanced to meet the increasing demand for speed and convenience. Earlier this year, the Federal Reserve launched the FedNow Service, introducing another real-time capability. This service could potentially enable over 9,000 financial institutions across the US to instantly transfer and clear funds, regardless of the time of day, day of the week, or holidays. Simultaneously, the Real-Time Payment network, initiated in late 2017, processed 64 million transactions in Q3 2023—an 11% increase from Q2—and has garnered over 400 member institutions.
Reducing paper checks also reduces the risk of check fraud, a crime that will cost consumers more than $20 billion this year alone. Mail theft is on the rise, and even the US Postal Service is discouraging the mailing of checks whenever possible.
In Resource Pro Insights’ newly released research, “The State of Digital Payments in P&C Insurance-The Imperative for Carriers to Transform Transactions,” we provide a current view of the landscape of electronic payment options, from banking payment rails to digital wallets and cryptocurrency.
Our report also highlights the expanding capabilities offered by digital payment platforms for insurance, allowing carriers to compare against their current capabilities. Features are progressively becoming more robust; for receivables, certain solutions can split and route single payments to multiple bank accounts for commissions and premiums. Moreover, some claims payment platforms incorporate vendor portals and prebuilt vendor payee details, or manage 1099 reporting.
Our research report concludes with an overview of twenty payment vendors serving the insurance industry: some focusing on premium payments, others on claims, and several supporting both.
We encourage carriers to reassess their payment processes comprehensively. This reevaluation might uncover surprises regarding the number of involved steps, required effort, supply costs, and duration. In cases where electronic banking or digital payment capabilities are implemented, it’s crucial to examine their actual utilization. Carriers should also inquire with their financial institutions and payment vendors about their plans for FedNow Service and Real-Time Payments certifications.
However, it is important to remember that realizing the value of digital payments comes from actual use. Getting the technology is just the first step – next comes the change management effort to refresh customer and vendor onboarding practices and claim interactions to make it easy for carriers, policyholders, vendors, and claimants to break the paper check habit.
Want to learn more? Read ReSource Pro’s recently published research report: “The State of Digital Payments in P&C Insurance.”