4 ways non-digital payments can expose insurers to hidden costs

The claims process is critical to an insurer’s relationship with a customer. More than any other interaction, this overall experience drives customer satisfaction and retention.

In fact, an Accenture study found that 83% of customers dissatisfied with the way a claim was handled planned to switch or had already switched to a new provider. As consumers have become even more accustomed to the “smartphone lifestyle”, it’s easy to imagine these numbers have only increased.

That focus on the claims process is why so many insurers have poured time and money into reimagining claims filing as a digital-first, customer-initiated effort. It is a near industry-wide standard for customers to be able to initiate an auto or other damage claim using a mobile app to take photos, share details and receive claims estimates. From start to finish, this process can take just minutes.

But that’s where the convenience ends and the friction begins. The majority of claims payouts today are still executed using paper checks or automated clearing house (ACH) deposits. These take time — including printing, mailing and eventual settlement; are expensive and risky for the insurer; and are disliked by customers. No one wants to wait days, even weeks, when it’s time to repair their home or auto after catastrophic damage.

Beyond customer complaints, these legacy payment instruments also expose insurers to a number of hidden costs. Slow payments, especially non-digital payments, can become a drain in multiple ways.

1. Claims leakage

The cost of a payment is much more than the physical cost of a paper check and postage. The longer a claim remains outstanding, the more expensive it becomes. Imagine mold damage from standing water, ongoing rental car coverage, or even the cost of a claims administrator to manage an extended claim.

Confusing legacy payments can also raise the cost of a claim by forcing customer support to help sort out vendor payments tied to specific payments or track down lost or misaddressed checks. These delays and confusion can also lead to compliance issues surrounding payout deadlines. In those cases, insurers often resort to expensive wire payments, resulting in another hidden cost.

2. Authentication and fraud

Aside from standard claims leakage issues, legacy payment instruments can lead to heightened costs for account verification, customer authentication and fraud. Customers taking proceeds in an account other than one they use for premium payments may require additional verification that can extend the claims window.

If that verification is faulty, a returned ACH can cost insurers an additional $8 and lead to frustration from the customer or vendor. Tracking a missing payment due to an incorrect address or mail delivery mishap is a common, laborious issue. Even worse, a fraudulent ACH transfer or cashed check can cost thousands of dollars plus the employee hours necessary to track it down.

3, Customer satisfaction and churn

Keeping a customer happy during the claims process often leads to a retained customer. But for all the reasons named above, that can be challenging — especially with paper check and ACH disbursements.

Churn rates are already high for single lines of business, which means having to replace lost customers with new ones. When a customer is lost, an insurer loses future premium payments and incurs the cost of underwriting, paperwork, and processing just to replace that lost customer with a new one.

Digital push payment solutions produce happier customers, improve tracking and verification to reduce friction, and lead to higher satisfaction ratings. And happy customers can even lead to positive word of mouth and new customer acquisition opportunities, especially in this era of social media sharing. Positive feedback can be further amplified by the carrier and act as a marketing tool.

4. Repeat payments

Paying vendors or customers for repeat claims can lead to higher costs. Ideally, insurers keep preferred payment methods on file, but customers can often switch accounts, and new NACHA regulations that take effect in 2020 greatly increase the security requirements for retained bank account data.

Using a digital or push payment platform, insurers can support changing consumer preferences, and securely capture, verify and tokenize account credentials and then initiate one-time or recurring payments digitally, seamlessly and instantly.

A ‘chance to differentiate themselves’

To avoid these hidden costs and improve the overall customer experience, forward-leaning insurers have begun to take their cue from other industries and adopt push payment capabilities for insurance claim proceeds. Used by lenders, banks, retailers and more, push payments allow for instant disbursements to nearly any consumer account at the push of a button, 24/7 on demand.

For insurance customers anxiously waiting to get a damaged car back in service, funds can be in the account of their choosing — a bank account, online wallet, credit card, or even a nearby cash out location — within minutes of the claim approval. The customer simply has to accept payment and designate a preferred account. Funds arrive in near real-time, fully guaranteed and ready to spend. Best of all, this can all be done within the same app or browser used to initiate the original claim.

Insurers stand to earn multiple bottom line benefits, including improved customer satisfaction and retention, lower costs of operation, reduced risk, and automated tracking and reconciliation. With real dollars at stake, insurers will continue to embrace real-time claims payments as the industry standard. Those that get on board now have the chance to differentiate themselves while others will be left behind.

Related:

• 22 insurers ranked highest in overall property claims satisfaction
• 6 reasons digital transformation is the future of insurance
•  Looking at the future of claims
• Believe it or not: 10 of the craziest claims of 2018

Drew Edwards (drew@ingomoney.com) is the chief executive officer of Ingo Money, Inc., a company he founded in 2001. The views expressed here are the author’s own.