Can The Insurance Industry Get Aboard The Faster Payments Train?

When Hurricane Matthew’s Category 5 bluster wreaked havoc on U.S. homeowners this fall, thousands were forced to seek shelter far from home, only to later return and find their homes destroyed or severely damaged by the storm.

Of the displaced masses, the Consumer Federation of America expects more than 100,000 insurance claims to be filed and anticipates insurance payments to top $7.5 billion. And these hurricane victims need payouts to happen quickly and easily, because any processing delays have the potential to pose additional problems as the victims attempt to get their lives back on track.

But it’s not just hurricane victims and other individuals who have experienced devastation expecting fast resolution. Today’s consumers increasingly expect payments to be processed quicker than ever before, and insurance companies are turning to newly introduced faster payment initiatives, such as Same Day ACH, to accommodate the demand.

To discuss the challenges and opportunities that faster payments initiatives present to the insurance industry, PYMNTS recently caught up with Chad Hauff, who oversees payment and billing operations as director of premium accounting for Safety Insurance. In the interview, Hauff discussed how insurance companies are trying to expedite the payments process using aging technology platforms.

Overcoming the antiquated

For the insurance industry, one of the biggest challenges is extending modern-day faster payment solutions through old-school legacy information technology platforms. Many companies across the insurance space are reliant on common business-oriented language (COBOL)-based platforms, which have been in existence since the late 1950s.

“You’re working with multiple systems that need to talk to one another,” Hauff said. “It’s tough to change a system that’s been in place and working for years. I don’t think anybody is averse to it. Consumers want it, and insurance companies want to provide it. It’s just always a lot more complicated than you really want it to be.”

Despite using decades-old billing and payments systems, the insurance industry has made strides toward making both more streamlined. From mailing paper bills to receiving them online, the industry is changing head to toe — from modernizing information distribution for its customers to upgrading its payments processing machinery.

“That’s the biggest change we’ve seen: the ability to transact electronically versus paper checks, money orders and cash,” he said.

While processing payments would ordinarily take days or more than a week, faster payment offerings, such as Same Day ACH, have now made it possible for insurance companies to process transactions almost instantaneously.

Even with the payment processing times being reduced, consumers for the most part are unlikely to fully appreciate the behind-the-scenes nuances that go into faster payments.

“I suspect most people don’t understand banking regulations or the complexity that goes into payments, settlements and that sort of thing,” he said. “It’s known but not understood. The closer you can get to what’s considered normal, which I think for consumers is real-time, is where the insurance industry would benefit … meeting expectations that are being set outside the industry.”

But with many insurance companies relying on legacy systems, they are finding themselves in a position where, even if their customers were able to send them insurance premiums faster, they wouldn’t necessarily be able to apply them to accounts quicker.

“You have your payment systems and payment collection process, but then you have your back-end billing systems, and they don’t always talk,” he said. “The connection is becoming better between the two, so the timeframe it takes to get from collecting the money and posted to your billing account is shorter and shorter.”

When looking at the payment collection-to-posting situation, insurance companies are making progress but aren’t quite where they need to be yet.

“If you have the option and capability to use ACH services now, we’re in a position where we can cut a check, put it in the mail or maybe even overnight it to you, but now, you as a consumer have to walk it to the bank, deposit it and wait for it to clear,” Hauff said.

Once insurance companies process refunds faster, they will start to exceed consumers’ expectations and, in turn, help make them long-term customers and increase retention rates, he added.

Maximizing Same Day ACH opportunities

Aside from customer retention, Hauff sees Same Day ACH opportunities on the claims side of the insurance business. Being able to deliver funds to policyholders shortly after they request payment would be a significant accomplishment, he said.

Case in point? Homeowners affected by Hurricane Matthew.

When they returned shortly after the storm to their devastated properties, the last thing they should have had to worry about was how long it would take them to get to their insurance claim check, Hauff said.

“Mail trucks aren’t going to be going through those neighborhoods,” he said. “Individuals are going to have a hard time getting access to a lot of the normal things for a little while, so I see that the ability to just take care of it and get the money to them that same day is going to pay off in a lot of different ways.”

From a non-claims perspective, Same Day ACH also presents opportunities for insurance companies to pay commissions quickly to vendors.

“Usually, you have a system or arrangement in place to pay them, but sometimes, mistakes happen,” Hauff said. “When you’re dealing with someone — a supplier, an agency or a contractor — you’re not talking about small dollar amounts. Sometimes, you’re talking about big dollar amounts, and they are looking to get paid, so it’s important to make sure they get paid in a timely fashion.”

Whether it’s paying vendors or processing consumers’ insurance claims following a natural disaster, speed and accuracy are critical components in both scenarios, as Hauff noted. But will legacy systems prevent companies from being able to make faster payments even more quickly than they are processed today? Stay tuned for updates as we monitor the industry’s track.

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About The Tracker

The PYMNTS Faster Payments Tracker™, powered by NACHA, is your go-to resource for staying up to date on a month-by-month basis. The Tracker highlights the contribution of different stakeholders, including institutions and technology coming together to make this happen.