Checks have historically dominated the property & casualty (P&C) insurance industry as the primary way insurers paid their policyholders and vendors, but paper-based payments have limits that have become prevalent during the pandemic.
The rising demand for faster funding is spotlighting the need for digital transformation.
Carriers like P&C shared service firm Tokio Marine North America Services (TMNAS) have sought to prioritize payment digitization when faced with the industry’s changing demands. TMNAS is a shared services provider for three North American insurance firms: First Insurance Company of Hawaii, Philadelphia Insurance Companies and Tokio Marine America. The firm began to explore alternative digital payment methods after many of its clients began expressing needs for faster, more secure payment options, Senior Vice President of Finance and Treasurer Michael Kelly explained in an interview with PYMNTS.
“Recently, we added eChecks, which allow us to make payments quickly to [clients and vendors] who prefer checks,” Kelly noted. “We have some small business vendors and clients who do not feel comfortable giving us banking information for [wires or ACH payments], but they would like to get their payments more quickly. So, we can offer them an electronic check that they can receive right away, but they can still control the receipt, processing and depositing of that payment.”
TMNAS is using eChecks, a method of electronic payment that resembles the paper checks businesses have come to rely upon while offering the speeds clients expect. Claimants and vendors are able to receive funds without waiting days for checks to arrive in the mail. eChecks, which TMNAS enables through a partnership with payment service Deluxe, also offer several benefits that other digital methods do not provide, including formatting that allows them to be easily integrated into clients’ existing payment approval processes without large-scale frictions.
“We are moving into an electronic world, and the speed of payments is very important,” Kelly said. “Insurance companies are adapting to develop … controls to ensure the speed and accuracy of those payments and get the cash into our vendors’ and claimants’ hands quickly and efficiently.”
Firms’ growing interest in eChecks could indicate larger shifts toward electronic payment options over more traditional payment methods, too, making it important for insurers to consider how eCheck adoption could evolve during and after the pandemic, Kelly explained.
The Payment Middle Ground
TMNAS currently pays out claims and compensates vendors with ACH and wire transfers, but eChecks may provide advantages these methods lack. ACH payments are typically delayed for at least a day, which could be too long a wait for companies banking on quickly receiving funds. Wire transfers can be processed too quickly for some firms’ needs, on the other hand. They rely on recipients to provide their bank details, and funds can be difficult to retrieve because they are sent immediately, Kelly said. eChecks fall into the middle ground between these two methods.
“That was one of the main reasons why we made some of the [claims] changes we did,” he said. “We were hearing from claimants that it was taking too long to get paper checks [and that] they wanted payments more quickly. In their day-to-day lives, they are getting payments via electronic methods … instantly, and the paper checks were taking far too long to get to them."
Speed was becoming much more critical to provide to business partners and claimants, even before the pandemic, Kelly pointed out, but the public health crisis raised the stakes. This move to digital is part of an ongoing trend that has made swiftness vital for competitive insurers.
“Our senior claims executives were anxious to get payments out to [clients and vendors] quickly, and they thought it would be very helpful for us to be able to offer them same-day or next-day receipt of their payments,” he said. “eChecks offered us that capability. We would speak to someone about their claim, we could agree on an amount, we could ask them if they were willing to accept eChecks, and if they said yes, the sell was, ‘We can get you your payment end-of-day today or tomorrow, and you’ll have your payment right away.’”
Kelly also noted that eChecks’ popularity as a B2B payment method was also growing prior to the pandemic’s onset, with TMNAS’ implementation of the method predating the pandemic by almost a year. The outbreak pushed many clients and vendors to close their brick-and-mortar locations, however, which could significantly impact the continued rise of electronic payment methods like eChecks.
COVID-19 Makes Digitization a Priority
Pandemic-related stay-at-home and quarantine orders are ongoing in many regions, and nonessential brick-and-mortar businesses have temporarily closed during the past several months. These closures have made it difficult for many firms to make or receive payments using traditional methods like paper checks, Kelly said.
“Clients need and want that cash flow, and they do not want people traveling or going into offices to get and process checks,” Kelly explained. “People are requesting electronic payments as much as possible. … We have [witnessed] a pretty significant uptick in vendors requesting electronic payments.”
Kelly said he expects that this digital migration will continue after the pandemic recedes, too. eChecks are likely to remain popular as well as boost interest in other payment methods. Insurers could even begin leveraging online payment platforms such as Early Warning Services’ person-to-person (P2P) app Zelle.
“We talk to [our banking partners] regularly about some of the tools that they are developing, like Zelle and push-to-cart [payments], trying to figure out where [they] fit into our payments system,” Kelly said. “We are interested in those [methods, but] we just have not found the right use-case for them yet. As they continue to develop and become more prevalent, we are always interested.”
Integrating such methods for insurance claims would require large-scale shifts in how entities treat B2B payments, however. Concerns over digital fraud schemes mean insurers, payment providers and their clients will need to reexamine their security measures and internal company processes.
“I think, again, [implementing Zelle] depends mainly on the internal controls and being able to ensure that the payments are finalized and approved before they go out,” Kelly said. “Really, I think the biggest issue with that is the finality of it — once you send those payments, they are very hard to cancel or get back.”
Monitoring the development of digital payment methods remains important for insurers, and they will need to quickly respond to clients’ changing payment preferences. Balancing security and seamlessness remain top priorities, however, and financial institutions (FIs), insurers and payment providers cannot afford to overlook these considerations when tapping into the latest payment options.