The speed with which money moves in today’s economy affects every industry. Advances in digital payment infrastructures are powering more efficient processes and heightening consumer expectations around funds access. In fact, research points to the digital payments market reaching $132.5 billion by 2025, based on a compound annual growth rate of 18%.
Insurance providers that capitalize on the opportunity stand to realize notable operational advantages as well as a competitive edge with clients. Some of the largest carriers have already moved toward more simplified, expedient payment processes to address disaster situations, requiring only a debit card and email address to receive funds within hours.
Beyond just faster payments, insurers need to recognize that the era of real-time payment is not that far off. Consolidation trends coupled with the financial industry’s introduction of a real-time payments systems and person-to-person (P2P) models—such as Zelle—have some industry experts suggesting it’s well under way.
A recent Engine Insights and VPay survey across 502 consumers who had filed an insurance claim in the past three years found that more than half would be willing to switch insurers to gain access to instant claim payment; that figure included more than 90% of Gen Z and 68% of millennials.
Simply put, the era of real-time claim payment is inching ever closer, and insurers need to evaluate readiness and consider the best strategies for sustainable alignment.
Consumer Expectations: A Closer Look
The vast majority—more than 95%— of survey respondents said that ease of payment, speed of payment and the ability to access funds quickly affected satisfaction with an insurer. More than two-thirds said that the ability to receive same-day claim payment is somewhat or very important—including 82% of millennials and 81% of Gen Z.
Regarding a willingness to switch insurers for real-time payment, a majority “yes” response was seen across multiple categories, including gender, income level and nearly all regions of the U.S. The desire for instant payment from insurers includes more than half of respondents with incomes higher than $50,000, which suggests that the concept of instant claim payment isn’t just important to those with lower incomes or among younger generations.
The survey also uncovered a glaring shortfall: 60% of respondents received their last claim payout by paper check. Consequently, today’s insurers need to think seriously about how they are either going to get a digital payment strategy off the ground or expand their current offerings.
Moving Toward Real-Time Payment
Automated clearinghouse (ACH) has represented the first step into digital payment offerings for many insurers in recent years. But carriers should not consider this single step a mature strategy going forward.
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From an operational efficiency standpoint, insurers are leaving money on the table when ACH is the only option, as it typically only covers a percentage of transactions; high-cost, legacy paper-payment processes have to cover the rest. Because an ACH payment is disassociated from important data such as remittance advice, these models can also create additional tasks related to reconciliation. Finally, ACH cannot compete with the turnaround times of emerging digital payment options, which enable payment in near real time on any day at any hour as opposed to within one to two banking days.
As insurers consider how best to advance their digital payment footprint, three strategies are central to future positioning:
1. Offer more digital touchpoints and payments options.
Push-to-debit, virtual card and mobile payment options are becoming important complements to ACH offerings, simplifying and speeding claim payment. Push-to-debit allows payment to flow instantly into a consumer’s bank account by simply obtaining the consumer’s debit card number. Alternatively, virtual cards enable same-day processing via a unique 16-digit card number that can be sent directly to service providers and run on their card terminal.
2. Personalize the payment experience.
The VPay survey found that choice was important to the claim experience for more than half of survey respondents, suggesting that generational differences and preferences should be taken into consideration to build trust. Customizable options that personalize the payment experience allow policyholders to select their preferred form of payment on a “claim-by-claim” or “all-claims” basis, whether a digital offering or paper-based check.
3. Stay abreast of technological advancement.
Technological advances will ultimately usher in greater opportunities to pass real-time payment on to policyholders, claimants, members and service providers. Peer-to-peer (P2P) models are a good example of how more consumers are embracing disruptive payment models, and progressive fintech companies are leading the way to introduce these options to the industry with configurations that fit into existing claims workflows. While 23% of survey respondents — primarily within older generations — were not familiar with payment methods such as push-to-debit and Zelle, 47% noted a preference for receiving payment this way, suggesting that new digital models are gaining traction.
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The digital payment landscape is rapidly evolving and stands to leave the insurance industry behind if carriers do not act now. It’s simply a matter of time, as consumers and service providers will increasingly expect the same frictionless payment experiences they have in other sectors of the market. Carriers that embrace the move toward real-time claim payment and take steps now to align with current trends will be best positioned to keep and gain market share in the future.