The Quick And Quiet Evolution Of Insurance Toward Instant Payments 

Hurricane Dorian may be officially over, but for those in the Southeastern United States and the Bahamas, the rebuild is just getting started. According to the experts, the damage Dorian left in its wake was massive – and costly. Insurers estimate it will cost them as much as $25 billion.

Settling the tens of thousands of claims and paying out those funds to all the consumers and businesses who need them will present a series of operational challenges over the next several weeks and even months, Ingo Money EVP and CPO Lisa McFarland told PYMNTS in a recent conversation.

The “good” news, according to McFarland, is that this is hardly new ground for the insurance industry. Natural disasters and the crush of claims that follow is very much the cost of doing business for an insurer. “The challenge [insurers] face is finding better ways to disperse large sums on an emergency basis,” she said, adding that a further challenge is the sums of money required to rebuild areas that have been almost totally devastated.

“For most of our lifetimes, that challenge has been navigated by the trusty old paper check,” McFarland noted.

Perhaps not so much moving forward. Today, the check appears less trustworthy and relevant – and much more time-consuming and expensive – in situations such as these. Disasters notwithstanding, it’s becoming increasingly clear that a better alternative is needed for insurance companies paying claims to those in need of funds.

“This is where we see instant payments can play a big role – not only in paying everyday claims, but also in a number of emergency instances where there is a lot of complexity in helping consumers and business owners rebuild their lives,” McFarland said.

When Cutting a Check Doesn’t Cut It

Checks are a less than ideal tool when it comes to paying out emergency funds, McFarland noted. The problem becomes most obvious when the loss is total – an insurance company mailing a customer a check is not all that useful if their mailbox was swept out to sea along with their house. But even in less dramatic instances, the issues are real. If the banks are closed or running at partial service levels, that paper check won’t be all that useful until a bank can clear it.

Checks also come with their own fraud and security problems, particularly in chaotic situations when it is easier than usual for the wrong person to intercept and misuse a payment.

Insurance companies have invested heavily in overcoming these problems, particularly in the event of natural disasters – often building localized command posts staffed with legions of adjusters ready to instantly distribute funds via prepaid cards.

That method of payout, McFarland noted, is a big improvement over checks in many regards – though it comes with its own complexities when it comes to distributing funds and ensuring that they are entrusted into the right hands.

“And you have to get them there just on a basic level, which means hiring armored cars to deliver these cards into a disaster area,” McFarland said, noting that the situation is sub-ideal from both a security and logistical perspective.

What instant push payments add to that situation, she noted, is the ability to put the exact amount of the funding where it needs to go – into a consumer’s or business’ primary checking account via push to a debit card. The advantage is that the insurer is able to verify in real time that they are disbursing funds to the right consumer and to an account actually owned by that person. Adding that level of risk management around a push-based disbursement lowers the risk of fraud that insurers may see when issuing claims payments via check.

Overcoming the Challenges

Ironically, perhaps, McFarland noted that the changeover won’t be easy, nor will it be instant.

There are some structural and process issues that need to be overcome. Push-to-card instant payments are only a usable solution for payments of $50,000 or less, as network and banking rules prohibit them for anything over that amount. For very large transactions – the replacement costs for catastrophic damage to a structure, for example – insurance companies will very likely have to turn to the check.

McFarland also noted that insurance companies are large and extensively regulated organizations that are often tethered to legacy mainframe systems. Because they operate across state lines, there may be payout requirements tied to local regulations governing disbursements. And, she added, insurance companies are operating across an increasing range of channels – face-to-face, online, via call centers and mobile – so claims and disbursements methods must be omnichannel enough to support the customer wherever and however they connect with the insurance company.

“These are big barriers, but they are all solvable barriers,” McFarland pointed out.

There are APIs, SDKs, partnerships and even wholesale outsourcing of disbursement solutions that insurance companies are increasingly using to bring their capabilities up to speed. And, encouragingly, McFarland said, insurance companies see this. They want to be doing this – at this point, it isn’t an area where a sale has to be made or a lot of explanations need to be offered.

“Progress is happening, mostly because the industry as a whole is rapidly coming around to the idea that it has to change,” McFarland said.

If one even looks at the evolution of disbursements over the last few years, she said, one can see that change.

The check may not be dead, she noted, but it is well on its way from going to being around 100 percent of disbursement payments in an emergency to being 15 percent or 20 percent. That, she noted, is big progress on a lot of fronts for the insurance industry – progress that, from Ingo’s front-row view into the industry, McFarland believes is likely to carry on through the cleanup of Dorian.

And beyond.

“What is driving the insurance industry is this rare opportunity to make a market change that enhances the customer experience, and does that in a way that is tied to significant cost savings in the long term,” she said.