COVID-19 has fast-tracked the insurance industry’s shift from paper-based to digital claim processes. The fact that technology transformation is on every insurer’s radar is not lost on investors: Insurtech funding reached a whopping $7.5 billion in 2020.
Now, insurers are grappling with the “how to” of implementing an optimal strategy to remain relevant in a rapidly evolving digital landscape. Notably, two forces are working in tandem to necessitate greater digital adoption: consumer demand and the need for streamlined operations.
On the operational front, insurers are facing some of the tightest operational margins seen in 15 years. The devastating impact of the COVID-19 pandemic resulted in losses of around $55 billion — second only to Hurricane Katrina.
Not surprisingly, 2020 ushered in a new day for digital demand from consumers. A Salesforce Research survey of 15,600 consumers found that 88% of customers expect companies to accelerate digital initiatives in the wake of the pandemic, and 69% of customers believe companies should offer new ways to get existing products and services via technology-enabled processes.
In terms of quick wins, digital payment is an obvious choice within the framework of claim processes. While a recent Guidehouse-sponsored study underscores that consumers increasingly expect and seek out digital payment options, the reality is that insurers can achieve near-instant return on investment by deploying digital payment infrastructures.
Simply put, a well-thought-out, holistic digital payment strategy can change the dynamic on an operational area that was previously a cost center.
Digital Innovation: Why Payment Should Come First
For many insurers embarking on a digital transformation journey, one of the greatest challenges is striking the right balance between human and digital interaction. And for good reason — with many areas of the claim lifecycle, there is risk associated with lack of human interaction, especially when policyholders are in crisis.
Generally speaking, this is not the case with payment. Policyholders overwhelmingly support digitization in this area, as demonstrated by a VPay and Engine Insights survey where more than 95% of respondents pointed to ease and convenience of claim payment, speed of payment and the ability to access funds quickly as criteria that affected satisfaction.
Working in tandem with low risk on the customer satisfaction front, digital payment delivers ROI on day one. The most obvious cost savings stem from the elimination of check print/mail costs equaling as much as $7 for every check issued, but the opportunities to create economies of scale go much further. For example, shortening the time to payment can also reduce ancillary costs — such as extra car rentals — related to lengthy claim cycles.
See also: The B2B Digital Payment Opportunity
First Steps to a Holistic Digital Payment Strategy
A holistic digital payment that positions an insurer well for the future goes well beyond implementation of automated clearinghouse (ACH) — the entry point for many. The best strategies start with incremental changes and capitalize on quick wins. In terms of optimal approaches, first steps should start with the following foundational elements:
1. The impact of various payment options
ACH may be one aspect of a well-rounded digital portfolio, but insurers should also consider other options such as push-to-debit and virtual cards. Push payments allow funds to flow instantly into a consumer’s bank account and can enable access to funds in near-real time, where ACH can take days. Virtual card options also speed B2B payment and operate as their own unique bank card and can be used like a credit card.
2. The power of personalization
The Salesforce Research survey underscores the growing importance of understanding individual preferences:
- 52% of customers expect offerings to always be personalized — up from 49% in 2019.
- 66% of customers expect companies to understand their unique needs and expectations, yet 66% say they are generally treated like numbers.
While digital processes are impersonal by nature, the right approach can help build greater trust through choice.
3. A framework for both B2C and B2B digital payments
Digital B2B payments are on the rise, according to a recent Association of Financial Professionals (AFP) survey. Financially, this approach makes sense: Just like B2C, electronic payment strategies targeting vendors and other third-party businesses save money. Electronic payment options such as virtual cards, which are delivered faster and come with electronic remittance data, align better with B2B.
4. Security strategies
Digital processes and cybersecurity go hand-in-hand, and the best strategies recognize that the way a company manages and stores digital data is key to protection. It’s one reason new data security requirements were implemented by the National Automated Clearing House Automation (NACHA), and more are likely on the horizon.
See also: Digital Outbound Payments Heat Up
5. Third-party fintech provider partnerships
An April 2020 Celent survey found that two forces were working in tandem: Insurers are accelerating digital transformation while simultaneously outsourcing non-strategic activities, such as digital payment. Designing a holistic digital payment strategy is not for the faint of heart. That’s why the business case for partnering with a fintech provider is often an easy one to make.
Digital engagement is a priority across the insurance industry. As executive teams consider quick wins with electronic claim processes, payment is a natural starting point. Holistic strategies that capitalize on operational efficiencies and address consumer expectations will define a competitive advantage and resiliency.