Real-Time Digital Claims Payments: The New Path to Customer Loyalty?

Gary was vacationing with his wife in upstate New York when the deer seemingly came from nowhere and leapt across three lanes of highway to total his car. He immediately entered a first notice of loss on his insurer’s website, and couldn’t believe it when his claim was approved within 24 hours – what an improvement over his last experience!

But then the wait began. Gary’s insurer approved a rental car while his car was in the shop, which he put on his own credit card. And while his insurer quickly cut a check for the value of the car, it was delivered to his mailbox in Ohio. Even after he returned home, Gary waited days for the check to clear before he had full resolution. While Gary is a hypothetical customer, his experience and the resulting frustration and stress are all too typical.

At the heart of all insurance products lies a promise, and the claim is the most important “moment that matters” in the customer lifecycle. The efficiency with which that promise is fulfilled has enormous impact on how an insurer is perceived. In fact, in a 2014 customer survey called “Why Claims Service Matters,” Accenture found that of the 14 percent of customers dissatisfied with the way their last claim was handled, 83 percent plan to switch to a new provider or have already done so.

But even providing a “frictionless” claims process falls short of modern customer expectations. Today, customers conditioned by online and smartphone experiences are accustomed to instant everything, and the insurance industry’s antiquated paper check payment model is a gut punch in a time of a need.

Pioneering insurers are already turning to instant payouts as a way to earn customer satisfaction and loyalty. While insurers have historically been hesitant to adopt new payment technologies, the customer and business advantages of real time payments can no longer be ignored. And, the install costs for such an initiative can also be relatively low as payments are the “last leg” of a process and don’t require integration to numerous legacy systems.

Customers hate the time and effort required to cash a check, especially when they need the funds to overcome an emergency or catastrophe. By exceeding customer expectations in this way and fulfilling on the insurance promise with an instant payout to the account of a customer’s choice, insurers deepen customer loyalty. And at the same time, they can reduce operating expense by shortening claims cycle times, lowering claims leakage and eliminating check costs.

Instant payments are also a path to customer acquisition. Most insurers are targeting millennial customers, 33 percent of whom replied to a First Data study called “The Unbanked Generation: A Guide to the Financial Habits of Millennials” that they won’t need a bank in five years. With a payments experience dominated by Venmo, Amazon and the like, these customers expect instant payments and ultimate flexibility. The paper check simply will not cut it. This is supported by a recent PYMNTS.com study that found checks held the lowest consumer satisfaction rating of all payment methods tracked with a 4.4 out of 100 rating.

As usual, the winners in the claims payment transformation race will be those insurers who can execute quickly, gaining a competitive advantage they can message as a differentiator to attract new customers. Today, there are a few insurers using instant payments (Allstate, Lemonade), but the opportunity remains wide open. And while the options for sending digital claims payments seem numerous, there are relatively few that meet all the needs of insurers. Here is a list of the requirements you should seek when evaluating digital payments partners and solutions.

Bank Sponsorship & Regulatory Compliance

Insurers typically work closely with one or a handful of treasury banks through whom they issue claims payments. Unfortunately, most treasury banks have not yet launched a digital payments platform and building one can take a year or more. The first step in identifying a payments partner is to find one that offers bank sponsorship and all required regulatory needs as part of its platform. This is an efficient way to get up and running while protecting your business.

Network Coverage

Some insurers are experimenting with the Zelle network for digital payments today. Unfortunately, Zelle limits digital funds to only those few banks included within the network. Similarly, VisaDirect, MasterCard and others offer their own direct payment solutions. Instead of seeking a single payment channel option, insurers must seek a credible partner that works across providers to enable payments to all types of consumer accounts. As a benchmark, consider Ingo Money’s own network reach of more than 4.5 billion consumer accounts, including cash out locations through MoneyGram.

Payment Delivery Success Rate

If you tell a customer that they will be paid on their claim instantly, it is absolutely necessary to meet that expectation. But many bank’s BINS (Bank Identification Numbers) don’t offer real-time posting and settlement, or may have restrictions on the amounts they can accept. Therefore, it’s critical that your solution provider have intelligent payment routing with built in redundancy to ensure near 100 percent delivery success rate.

Customer Facing Communications

Equally important to your interactions with the payments provider are the communications they share with your customers. Notifications to the customer need to be consistent with company branding and deliverable across any device. The interface should be straightforward, making it simple for the customer to access the payments gateway, choose the account of their choice, and validate that the account can, in fact, receive payment. This level of customization requires more than a basic API and means you should seek a partner with a both a solutions and professional services component.

Automatic Reconciliation

Insurers already deploy systems that record all payments through check or ACH, track clearance, and verify that disbursed funds match approved claims. A digital claims platform should simplify that process to make it even easier and more efficient for internal teams to manage reconciliation. Look for a platform that offers automatic reconciliation to reduce overhead and streamline workflows.

Today, insurers are on the front end of the digital payments journey. Many are dabbling in small proof of concepts (POCs) involving limited payment options, and are still working out some of the kinks. But the payoff for success is enormous: greater customer acquisition and retention, lower claims costs and claims leakage, reduced payments fraud, and shorter claims cycles.

Ultimately, customer mandates to “kill the check” mean that all insurers will embrace digital claims payments. Early adopters have an opportunity to reap the benefits early and create differentiation in the marketplace, while those who stand on the sidelines will be increasingly perceived as out of touch with the instant money economy.

Drew Edwards is the chief executive officer of Ingo Money, Inc., a company he founded in 2001, which provides mobile-forward, instant deposit and payment services that fuel consumer adoption of digital payment platforms. Prior to of Ingo Money, Edwards founded and served as chief executive officer and chairman of the Board of Directors for Towne Services, Inc., a publicly traded e-commerce company providing solutions for over one thousand financial institutions. He previously held management positions with the Federal Reserve Bank and The Bankers Bank in Atlanta and served on the Board of Directors of Skylight Financial, a national payroll card company now owned by TSYS.