B2B payments in the insurance industry suffer from many of the same challenges that other markets do: namely, check-based payments. However, to push insurance providers in the direction of ePayments, service providers have to acknowledge the nuances of the insurance payments machine.
In particular, a heavy volume of both B2C payments (consumers paying premiums to insurance companies, as well as insurance companies sending claim payouts to individuals) and B2B payments (insurance companies paying service providers) pave the way to a complex mix of payment rails. Of course, checks remain prevalent in this market, says Ben Peters, Chief Operating Officer at insurance payments solutions company VPay.
For policy subscribers, insurance companies' shift away from paper checks toward ePayments can mean faster payouts to claimants. But the market's B2B payments practices present a tougher sell to make the switch from faster, electronic payment technologies, Peters told PYMNTS. That's because the insurance industry is heavily reliant on payment data, perhaps more so than other verticals.
"There is some value in speed of payment," he said of the insurance sector's interest in faster B2B payments. "But speed of payment doesn't mean anything if you don't know what it's for."
Remittance data, linked to payments between providers and insurance players, is critical on both ends of the transaction. Electronic payment rails can support the movement of information more efficiently than paper checks. For this reason, virtual cards are a rising star in B2B insurance payments, according to Peters.
"We want to offer our customers the widest solution, soup to nuts — that means creation of the remittance data, creation of the payment, reconciliation of the payment, treasury management services, the entire spectrum," he noted, adding that virtual cards can address all of these needs for insurance firms. "We see really high adoption of virtual cards."
In verticals like healthcare, claim data can be dozens of pages long and, at present, the market struggles with transmitting that information efficiently whenever payments are made. The healthcare sector has taken to adopting ERAs (electronic remittance advice), a version of electronic data interchange (EDI) unique to the industry, to move information between parties electronically. Peters noted that it is a step in the right direction for this market — a multi-trillion dollar segment of the insurance space — to embrace digital data, but emphasized that the movement of data remains separate from the movement of funds, even if healthcare providers and insurance firms adopt electronic payment rails like ACH.
"The adoption of both ERAs and electronic payments is growing in healthcare," Peters explained. "But the issue with ACH is the separation of remittance claim data from the actual ACH payment. This remains a hurdle, probably, to why [ACH] is not ubiquitous."
The acceleration of ACH payments — namely, the implementation of Same Day ACH — has its place in the insurance market, he added, particularly when it comes to B2C use-cases, like workers' compensation and claims payouts. In B2B, the demand for remittance data means ACH adoption can be stunted, let alone adoption of Same Day ACH.
"Same Day ACH may have a place, but we're not seeing wide adoption," he said.
Consumer payment solutions like Venmo and Zelle are taking off because they rely on less data to move funds as quickly as possible. It's just the opposite with B2B payments in the insurance space, said Peters.
While the insurance industry is moving away from paper checks, Peters noted they remain prevalent, in part, because there is no on-boarding process as there is with ACH and other rails. Some new VPay customers are entirely reliant on checks, but the company gradually shifts them away and can get that check usage level down to about 50 percent for that client.
As VPay continues that effort, the company recently announced it received certification from NACHA as a third-party sender, a significant vote of confidence for the ACH rail in insurance B2B payments. But the industry and its service providers must first address the issue of moving data quickly and efficiently before insurance companies embrace faster B2B payments, said Peters.
"Faster payments are still relevant, but faster payments are probably not going to drive, in and of itself, improved electronic adoption unless it's associated with the remittance," he said. "That's the difficult part."
Luckily, Peters said the market is at least on the path to improved B2B payments processes.
"Over the last two years, we've seen a significant change from insurance payers in the way they're receptive to promoting electronic payments," he noted. "That's a positive, in general, for the B2B space. But, specific to insurance, there has been a significant mindset shift in only the last two to three years, so we hope that continues for the industry."