| By Patricia Moore
Nordic Capital Bets on Digital Payments Backing InsurTech One Inc 
For many insurance companies, payments is just an operations function that hums along in the background. Money comes in. There are spreadsheets involved. What’s the big deal? Why put more thought into it?
With insurtech hotshots popping up left and right, along with skyrocketing consumer expectations for convenience and personalization, ignoring the payments experience can be a dangerous gamble.
Payments are the very thing that keep your business, well… in business. It is a mission-critical function — one might even call it the lifeblood — that extends to nearly all areas of the organization.
Industry leaders recognize the importance of a carefully-managed payments processing system. And they are hyper-aware of three main points when approaching this core function.
How you handle payments has the potential to make or break an already-delicate relationship with your policyholder.
For most consumers, insurance payments are painful and inconvenient. That pain, combined with a general mistrust of the industry itself, can turn each payment into a natural trigger to re-evaluate their current provider. How many payments will it take until they start shopping around? With attrition rates of 15% at the top insurance companies, this is not a game you want to play.
Perhaps an even bigger threat to retention and persistency is the fact that the insured does not get a “thing” at the time of payment. In fact, for most policyholders, claims are few and far between, making the benefits of insurance seem that much more elusive. And, unfortunately, the concept of peace of mind is neither tangible nor actionable, making payments an especially tedious task.
Even if your customer is not out looking for a new provider or otherwise disenfranchised, sometimes people just don’t pay. Whether due to a simple memory lapse, unavailable funds, or an operational mishap, that bill can quickly drop down to the bottom of the proverbial (or literal) pile and just sit there, unpaid.
As the insurer, it can be difficult to bring premium payments back to the forefront. Sending a gentle nudge is akin to trying to get someone’s attention in a crowded room by whispering. Yet a a loud reminder can easily push your policyholder straight towards your competition.
However, what if you walked across the room, shook hands, and engaged with them on a personal level? Basically, to get their attention, you can — visibly, yet unobtrusively — approach them on their turf, in a way they will be most receptive.
Generally speaking, policyholders prefer one of two payments experiences.
The "Fun" Payment Experience
Ok, perhaps “fun” is a bit of a stretch. But you can turn payments into a positive and memorable experience for the policyholder by allowing them to select the manner in which they are contacted (mail, text, email, social media, etc.), and offering a pleasant opportunity to communicate and pay.
The "Invisible" Payment Experience
For customers who prefer a more hands-off approach, you can create a non-event payments process with zero inconvenience. Make payments and renewals so simple — preferably automated — that it takes minimal time and effort.
An insurance company with a complete payments strategy can deliver the kind of payment experience policyholders demand. You can proactively create a value-add experience for those that want or need communication around their payments. At the same time, you can create a non-event for those that want to set-and-forget their payments.
Credit card usage is at an all-time high, and it is no longer feasible to not accept them as a valid payments method.
However, as we all know, accepting credit cards comes with an added cost. Depending upon the payment model and contract, credit card processing fees cost merchants between 1.4% – 3.5% of each transaction, in addition to any setup fees, equipment fees, per-transaction fees, and other fees your agreement may include.
Considering insurers are already bound to slim margins (3% – 8% in P&C), absorbing the processing fees would be cost-prohibitive. But, once again, cash-or-check-only has no place in a modern, scalable business.
Traditionally, insurance companies have chosen one of two options to deal with the added expense.
Raise Rates
Unfortunately, passing the cost on to customers by raising rates across the board affects the ability to remain price-competitive.
Add a Surcharge
If you do add a surcharge, however, be prepared to navigate all the laws, rules, restrictions, and regulations that vary from state-to-state, card-to-card, and year-to-year.
...However, industry disrupters are taking advantage of a lesser-known third alternative. One that allows them to offer competitive rates, maintain a reasonable profit margin, remain compliant with all the regulations, and still extend policyholders the convenient option of paying with their credit cards.
Work with a Third-Party Processor That Can Help
By partnering with a processor that understands the nuances of insurance payments — including all legal statutes, credit brand policies, and DOI regulations — industry leaders have found ways to mitigate those pesky processing costs.
With the drastic rise in data breaches over the past few years, cyber security has become a top priority. The risk of getting hacked is higher than ever, and storing credit card data on your servers makes you a high-value target.
The leading insurance companies have caught on quickly. There’s no reason to shoulder that risk or invest the massive amount of resources (financial and otherwise) of maintaining the necessary level of network security. Not when reputable payment processors include features that solve for these security and compliance issues.
A few basic things you’ll find with a reputable payment processor include:
Tokenization
Proper use of tokenization effectively encrypts and parcels the sensitive data in such a way that no one entity is storing the data in its entirety. The gold-standard for data security, tokenization is especially valuable for protecting payments information.
PCI Compliance
Most insurance companies believe their procedures align with PCI regulations. Yet many continue to inadvertently break the rules, risking not only a breach, but also hefty fines for non-compliance. If your CSRs have taken even one payment over the phone, they've likely broken compliance regulations. Using a third-party takes this burden off your hands, and you can rest assured that your payments system is secure and compliant.
Branded Customer Engagement
The right payments processor will offer your policyholders a positive, personalized experience that makes them feel good about their insurance provider. Whether you go with a general service or an insurance-specific solution, make sure the company you choose can sufficiently represent your brand and provide for the needs of both you and your policyholders.
Integration
Many insurance companies rely on older technology, and upgrading can seem like an impossible undertaking. However, if you use a third-party payments processor that can integrate directly into your legacy system, you — and your policyholders — can enjoy the benefits of modern technology without the hassle of a complete overhaul.
With a rapidly widening gap between the so-called “laggards” and leaders, insurance companies that are fighting to keep their place in the market need to pay close attention to the actions of their successful peers. Analyze top performers, as well as the relative newcomers that have swept in and disrupted the entire industry. How do their operations compare to yours? Can your business adopt some of their processes to create a similar appeal to your own policyholders?
Of course you should continue to differentiate yourself with the unique value you offer. But you can no longer afford to ignore the trends that have already proven to attract customers and inspire loyalty in this increasingly tech-savvy culture. And as the lifeblood of the business, payments can be the perfect opportunity to secure your place among the industry leaders.
Do you have questions about payments processing options?
Patricia is passionate about helping insurers continue to achieve success in a rapidly changing industry. She offers news, insights, and tips to help you modernize your organization, boost efficiency, and provide a superior customer experience for today’s policyholders.
