Digital claims, AI-assisted underwriting, and automation in policy administration are all top-of-mind when it comes to insurance innovation. But there is one function that remains under the radar but underpins the entire insurance lifecycle: payments. Payments are a core function of insurers, but many are dealing with outdated, rigid payment systems that are not only clunky but a liability.
According to the National Association of Insurance Commissioners (NAIC), direct premiums written (DPW) in the P&C sector climbed to $529 billion in 2024, an 11% increase over the previous year. That growth is tremendous, but many carriers are not equipped to efficiently handle the sheer volume and complexity of financial transactions that come with it. Legacy payment infrastructure, much of it designed for a paper-based world, is cracking under the pressure.
Where Payments Fall Short
The traditional P&C payment setup is riddled with gaps. Premium collections are siloed from claims disbursements. Reconciliation happens manually. Adding payment vendors takes months, and compliance tracking is often an afterthought. This is leaving customers wondering why a refund or claim payment takes a week when Venmo can move money instantly.
These inefficiencies are costing insurers more than operational overhead. They are damaging customer trust at the worst possible moments, like after a car accident or natural disaster, when policyholders expect fast, seamless payouts. If a delay or mix-up happens during that crucial window, no amount of customer service and marketing will win that customer back.
Even worse, regulatory pressure is mounting. Payment compliance is not optional, and falling short, whether on timing, transparency, or data handling, can invite fines or audits. Old systems were not built with today's rules and expectations in mind.
From Back Office to Brand Differentiator
Once relegated to the back office, payment systems are now becoming a critical differentiator. Customer experience is no longer just about how quickly a claim is approved, or a policy is bound; it is about exceeding customer expectations across the entire insurance journey. To ensure these expectations are met, how payments are distributed is key.
Today's consumers live in an instant payout society and expect immediacy, transparency, and choice that brands like Amazon, Uber, and Apple provide. The same is true for the insurance industry. Consumers want to pay premiums how and when they want and receive claims payments just as easily. If that is not possible, they will find an insurer that can meet their expectations.
For forward-thinking insurers, that shift presents an opportunity. The same infrastructure overhaul that improves operational efficiency can also unlock brand differentiation. Real-time payment capabilities, digital wallet integration, automated reconciliation, and compliance built-in from the start are not just technical upgrades, they are critical competitive advantages.
What Modernization Looks Like
Payment modernization is not about ripping everything out and starting over. It's about building an ecosystem that is flexible, scalable, and connected. Insurers need to deploy payment orchestration platforms that plug into existing core systems while unlocking powerful new capabilities. Here are some of the benefits when payments and core systems seamlessly work together:
- Instant collections and disbursements – Customers can pay premiums using any major method (credit card, ACH, digital wallet) and receive payouts the same way, often in minutes rather than days.
- End-to-end visibility – Finance teams can track every dollar, from initiation to settlement, across billing and claims.
- Faster integration with vendors – What once took 12 months now takes two weeks. That means insurers can add or switch payment providers without stalling operations.
- Automated compliance – Built-in tools ensure payments meet state and federal regulations, with full audit trails and reporting.
- Automated workflows – Errors and bottlenecks from using paper-based, manual processes can be eliminated.
Insurers that have adopted modern payment infrastructure are not only more agile but are saving millions annually in processing costs, reducing call center volume, and scoring higher in customer satisfaction.
Real Risks of Maintaining the Status Quo
The risks of not modernizing are growing by the day. As more insurtechs enter the space with fully digitized platforms, the gap between modern and traditional carriers will only widen. And while legacy players may still hold customer trust and market share today, their lack of payment flexibility and immediacy will test that trust. Every delay, every friction point in the payment process erodes confidence. And in an industry built on trust, that can be costly.
Payment technology is evolving quickly, including initiatives such as embedded finance and real-time rails. Insurers that are not already modernizing may soon find themselves too far behind to catch up. This is especially true as regulators increase scrutiny and potential monetary fines over digital payment compliance and transparency.
Building a Future-Ready Foundation
Modernizing payments is not just about fixing what is broken. It is about building for future considerations. Payments touch every aspect of an insurer's operation. By improving how money moves, insurers can accelerate product launches, personalize billing strategies, streamline claims, and gain deeper financial insight across the enterprise.
For carriers looking to lead, and not just survive, payments is the place to differentiate and digitally transform. Because if one insurer cannot pay quickly, securely, and conveniently, another will.
