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The Power of Digital Payment: Three Strategies for Innovating the Last Step of Claim Processing

By Jeffrey Brown, President, VPay

Jeffrey Brown, President, VPay

As policyholders demand a more seamless, more transparent customer experience, it is increasingly clear that faster, digitized claim processing sits at the heart of insurers’ innovation strategies. That is why many insurers empower policyholders to process claims with the touch of a smartphone. But even the best mobile apps often fail to digitize the last step in this process: claim payment.

Consider an all-too-common scenario. A policyholder uses a mobile device to start an automobile claim, and real-time alerts keep the policyholder engaged and informed at each step. The policyholder is delighted by the speed and transparency of this process. But the digital experience ends once the policyholder is notified that the claim has been approved and payment will be made. Suddenly, a lengthy paper-based process takes hold:

• Five days pass before a paper check arrives in the mail

• The positive impressions left during the all-digital experience erode when the policyholder is left holding a paper check

• Once the check arrives, the policyholder must transport the check to the bank or the auto repair shop to be endorsed before the vehicle is released

Too often, the last touch in this process colors the policyholder’s impression of the entire experience. It is cumbersome and old-fashioned, and it does not match with the experience policyholders receive in other industries. Yet, while digital payment use is on the rise, many insurers are hesitant to replace ‘tried and true’ paper-based processes. They fear risking policyholder abrasion by adjusting a process that, in their view, works well. They also face tough questions in the move to digital payment: ‘How will we authenticate payees and validate bank accounts? How will remittance advice be delivered? How would we manage electronic multiparty payments?’

But the reality is that consumers—especially younger generations—increasingly seek digital payment. One report found high-earning millennials are 2.5 times as likely to pay by smart devices as other generations.

How can insurers support an all-digital claim payment approach that boosts satisfaction? Here are three strategies to consider:

Strategy 1: Pay attention to payment preferences by generation and look for ways to personalize the experience.

Consumers are demanding real-time payments, but their payment preferences vary by generation. While younger millennials and Gen Z policyholders embrace digital wallets, Gen Xers and baby boomers who gravitate to electronic payment tend to prefer digital app payments. Meanwhile, some baby boomers and Gen Xers find greater peace of mind receiving a paper check. This means that choice is paramount when it comes to claim payment. Providing choices goes a long way toward establishing a foundation of trust.

One best practice: Allow policyholders or service providers to select their preferred form of payment, whether digital or paper. Send a text or email alert when payment is available, and give policyholders and service providers the opportunity to select a payment option at that time. Preferences can then be applied to future disbursements if desired, increasing efficiency.

Strategy 2: Offer multiple digital payment options

Avenues for receiving digital payment are rapidly evolving, ranging from automated clearing house (ACH) to push-to-debit, mobile e-payment, and, for service providers, virtual card payments. Incorporating multiple options strengthens policyholder and service provider satisfaction while increasing speed-to-payment and decreasing administrative time. Some digital claim payment options send payment injust 15 minutes or less.

Digitization trends reveal a growing acceptance of virtual cards by suppliers and greater satisfaction with these processes. These ‘e-payable’ options are now supported by 50 percent of suppliers as they increasingly recognize the benefits of virtual payments, including improved cash flow, elimination of collection risk, streamlined processing, reduced risk of payment fraud, and the ability to recoup administrative costs.

One best practice: Make sure remittance advice is sent with electronic payment, not separately. It is an approach that supports faster reconciliation and further reduces administrative time for staff.

Strategy 3: Keep digital security and compliance top of the mind

Security and compliance strategies must evolve in tandem with the advancement of digital processes. In today’s climate of evolving threats, insurers must take this responsibility very seriously. That means deploying a holistic approach to cybersecurity that addresses infrastructure, people, and processes. Notably, a 2017 report found that nearly half of insurance companies have uncovered significant cybersecurity events in their organization. Because most insurance companies work with third-party providers, oversight must also extend to these partnerships. 

Information security standards from the Insurance Data Security Model Law require that insurance companies conduct oversight of third-party service providers to ensure compliance with guidelines. Consequently, the onus is on the insurer to assess that the following credentials are in place before contracting with a third party for digital payment support:

Payment Card Industry (PCI) Security Standards certification, which supports protection for sensitive payment card information

• Service Organization Control (SOC) 1 and 2 compliance, with SOC 1 focusing on financial audit controls and SOC 2 centering on operations and compliance controls

• Nacha Certified, a voluntary accreditation program for third-party senders and those that send ACH payments

Keeping Pace with Policyholder Preference

As consumer expectations dictate insurers’ path to innovation, the moves insurers make to digitize claim processing must include consideration of policyholders’ preferences for payment.

While banks have payment rails for money transfer that are already compliant with insurance industry regulations, these rails no longer suffice on their own. Fintechs optimize these payment rails with highly configurable platforms that deliver payment the way consumers and businesses wish to receive it. They match the digital experiences of retail with the level of security required to protect sensitive financial and nonfinancial data, such as protected health information.

Applying a digital transformation to the last mile in claim processing is critical to securing policyholder satisfaction and loyalty in a transformative, customer service-oriented environment. The best solutions personalize the payment experience, and reduce the friction related to multiple payment types, approvals, and payment delivery and reconciliation.

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