Streamlining payments in the insurance industry
On the surface, it appears that technology has transformed the insurance industry. From wearable tech that can reduce the cost of health insurance premiums by monitoring activity levels of the insured, to advanced tracking apps that reward safe drivers with discounted car insurance, technology provides insurers with an abundance of data that can be used to enhance their value proposition.
However, one major factor behind the scenes holding the industry back, is the archaic payments infrastructure upon which it relies heavily. Both reconciliation and payouts are reliant on outdated and manually intensive systems and processes, impacting the speed at which billions of pounds flow between all parties in the supply chain, including policyholders, insurers, brokers, intermediaries, loss adjusters, and contractors employed to carry out repairs.
Another major issue is discrepancies in reconciliation rates. Anything less than a reconciliation rate of 100% can result in uncertainty about inbound payments running to billions of pounds, making it more challenging to mitigate cash flow risk.
Research conducted by Banking Circle in conjunction with Insurance Post found that 57% of insurers have reconciliation rates of between 50% and 90%. This highlights serious inefficiency in their collections systems, and is an ongoing drain on operational and financial resources and results.
These inefficiencies may not be surprising given that 28% of the market still relies on manual reconciliation methods, whereas just 4% have fully-automated reconciliation solutions that require no human intervention.
When it comes to common issues with reconciliation, the most cited were:
- Collection of the insurance premium where Direct Debit is not used or has failed to take payment
- Delays caused when the payment reference is omitted by an intermediary bank
- Delays caused if the payment reference is manually miskeyed
- Collection of payment from brokers and intermediaries
Payments innovation not keeping pace
Gareth Howell, Managing Director, AXA Direct, highlighted the need for better payment solutions to meet customer expectations. “The quick processing and reconciliation of payments is a vital thing for our customers and is a significant component of our operating model.
“Digital trends and new technologies over the past 10 or 15 years have already changed that significantly for insurance companies, where typically our payments to customers would have been cheques, that is now genuinely an exception with only a handful a year; most are electronic payments now.
“We need to make sure that our customer experiences evolve to keep up with customer expectations, and in many situations, still, the insurance industry needs to up its game in pursuit of that.”
While the vast majority of insurers are investing heavily in understanding and implementing digital developments on the front end, existing payment systems and architectures have been somewhat neglected, despite the obvious commercial benefits if overhauled and upgraded.
Transitioning to more efficient systems that allow insurers to collect premiums effectively and pay out claims promptly would resolve all of these issues, but is there a solution out there that can be implemented capable of managing multi-billion pound payment flows?
A global, scalable, segregated account solution
Virtual IBANs provide a scalable solution that can streamline payouts and reconciliation by issuing accounts in the name of the individual provider customers, or as a group of virtual IBANs in the name of the broker or intermediary. Because payments are made in the name of the insurance provider account holder, this reduces errors in reconciliation, improving payments acceptance, while also offering faster settlement times.
To find out more about how virtual IBANs can transform payments in the insurance sector, watch episode one of The Insurtech Show below, download our white paper ‘Moving beyond the pain points: Improving the insurance reconciliation and payment architecture’, or get in touch.