While every business uses invoices to handle customer payments, in the insurance industry they can be a serious matter.
Unlike other businesses, insurance agencies are bound by state and federal laws that restrict how they can cancel policies, which can have an effect on invoicing at every stage.
Insurance laws in every state require that a written notice of cancellation be presented to the policy holder by the U.S. Postal Service a certain number of days before the policy is canceled. (The number of days varies by line of business and by state.)
If the reason for cancellation is non-payment, and the insurance carrier or agent or carrier accepts any payment on this policy before the cancellation date, then, by law, the entire cancellation process has to start from scratch.
This is important because, when the policy is being canceled for non-payment of a premium, the insurance carrier is still required to show the amount of premium that is due as revenue. The amount due minus the amount received is money that is never received and will be written off as an expense. This is a real cash loss to the carrier, because the agent’s commissions for unpaid premiums are also withdrawn from the agent’s commissions earnings by the carrier. Therefore, it is a real cash loss to the agency, as well.
Additionally, if a claim-and-loss occurs during this newly reset cancellation period, the carrier is required to pay the loss — regardless of the outstanding premium that is due. Most states cannot deduct the past-due premium from the loss payment. The only exception to this is if the insured fails to pay the renewal premium. In this instance, no notice is required. The insurance policy simply cancels as “not accepted” on the renewal date.
Cancellation laws make insurance invoicing more complicated than a typical business invoice. It is important to control the time in which the payment will be accepted, the amount of payment accepted and the specific policy to which the payment is being applied.
These complex laws can be tricky for insurance agencies, but one way to make them easier is to use software that is designed to meet those needs.
When setting up an invoicing system for your agency, make sure that it addresses these problems.
Your system should allow you to set the date after which the payment in your link invoice will not allow a payment to be processed. In practice, this means you should set this date as the cancellation date for the policy, which will keep your customer from paying any amount after the cancellation date.
You should also be able to set the exact amount of the payment that can be made. This should be the correct amount due to pay for either the rest of the policy period or, at a minimum, the amount due before the next scheduled policy installment payments. This amount should also include any and all appropriate late charges and other fees.
See also: Designing a Digital Insurance Ecosystem
Make sure your system allows you to set the amount due as a range rather than a fixed dollar amount, allowing the customer to pay any amount above the minimum amount due.
If your system allows people to pay multiple policies on the same invoice, make sure it properly separates out payments to be applied to specific policies.
If you do not apply specific premiums to specific policies, you cannot use non-payment of premium to cancel any of these specific policies.
By following the advice laid out in this article, you can protect your agency and your insurance carrier from resetting cancellation notices; incurring increased unpaid premiums and commissions; and paying claims during the longer time required for cancellation during the time when a partial payment resets the cancellation notice cycle.
Invoices are trickier in the insurance industry, but that doesn’t mean they have to be more work.