Natural disasters are horrifically destructive events. Out of the total economic losses attributed to the destruction caused by Hurricanes Irma and Harvey, which could range from $150 to $200 billion, experts estimate that the insurance-related losses could run as high as $20 to $40 billion. Only Hurricane Katrina, the most expensive natural disaster in U.S. history, comes close, causing $15 billion in flood insurance losses.
“Imagine being an Uber driver in Houston right now, with a car underwater,” said Ingo Money CEO Drew Edwards in a conversation with Karen Webster and Cecilia Frew, senior vice president and head of U.S. Push Payments for Visa. “That’s your source of livelihood. The actual widget that an insurance company produces is a check, that claims payment is the reason why people have insurance.”
The problem, he noted, is that the insurance industry as it exists today is not geared for speed when it comes to making claims payments to its insured clients. The default payment method of choice is the antiquated paper check, which takes a long time to process and mail, and then a few days to clear once they make into the bank account of the insured. That assumes there’s still a mailbox where that check can be delivered and an open bank branch where it can be deposited.
But Mother Nature doesn’t care much about how companies are wired – and in the wake of flooding that’s left millions of consumers without cars and homes, speed is a necessity.
“This is really a customer service issue. At some point, please don’t mail me a check to a mailbox that isn’t there anymore because it was washed out to sea,” Frew said, noting that sending a check can cost an insurance company anywhere from $3 to $10 per person.
Edwards said that out of this tragedy has emerged a catalyst for change, the dire need for getting thousands and millions of claims paid in a very compressed period of time. “The insurance companies can make it work, and get off the paper checks,” he said. And they can do it now, in enough time to help those who are suffering today from the effects of Hurricanes Harvey and Irma.
So Why Haven’t They Already Done It?
That was Karen Webster’s main question. The technology to leverage push payments directly to consumers’ debit cards is widely available, and Hurricanes Harvey and Irma aren’t exactly the insurance industry’s first rodeo. So why did it take two back-to-back natural catastrophes to get them to sit up and take notice?
Frew said that the move to accelerate claims disbursements using push payments isn’t necessarily new, but the sense of urgency is.
“What is so interesting is we have been talking to insurance companies now for several years,” Frew said. “Sometimes it takes a crisis to get people to move. We’ve been working with companies in this space – particularly Allstate, which actually launched in the field push disbursements to cards during this event. That has been so successful, and now we’re talking to a number of major players about getting something similar up and running.”
Edwards agreed, noting that these conversations aren’t new at all, but that their tone has changed in the last 18 months. Insurance companies, he observed, are much like the banks were 10 years ago in terms of embracing innovation.
“Insurance is not by its nature innovative, but neither were banks,” Edwards said. “If it wasn’t for FinTech, I don't think traditional banks as we know them would be doing much but making loans, taking deposits and collecting fees. Sometimes you need a catalyst – and the insurance industry is now seeing their models are under fire from innovators using new technology.”
Such innovators, including legacy players like banks and insurance companies, are not anchored in old systems, noted Edwards. In fact, they have designed their platforms to include push payments and other features that deliver speed and efficiency from the very beginning.
The Broader View
Disasters, both Frew and Edwards noted, point to the glaring deficiency in insurance payments, but also to the general need for the entire disaster ecosystem to move funds easily to victims, particularly in an emergency.
“We have seen big opportunities related to natural disasters, which we unfortunately have our fair share of in this country,” Edwards explained. “We are talking to nonprofits and government offices like FEMA and many more that are collecting funds and want to get them disbursed to people as fast as they can.”
And, Frew noted, the ecosystem becomes bigger still when one considers that before disbursing all those funds, they have to be collected and solicited.
“[Visa] is working with the Red Cross, which just announced they have started using push payments for relief aid for storm victims and for aid workers,” Frew said.
Frew said that the biggest impediment to persuading insurance companies to adopt things like push payments is mainly inertia. Once that hurdle is overcome, the benefits are immutable as they see how efficient and valuable it is, for companies and consumers alike.
More importantly, said Edwards, the consumers are already familiar with the concept of P2P, as they have been trained to send money easily and instantly. What they don’t understand is why their insurance companies can’t be as effective as the P2P apps they have on their phones.
‘This isn’t something that [insurance] companies can think about maybe adopting or not,” Edwards said. “They understand that their competitive edge in the market is going to be decided by their ability to service their customers, particularly in times like this.”
Frew agreed: “This is not a cost conversation with insurance companies anymore – it’s a customer service conversation.”
Getting there, though, is no small task – in part, Edwards said, because there is no single switch to flip given the myriad of disparate legacy systems that exist in those organizations.
The good news, Frew noted, is that companies don’t have to make the change in one fell swoop.
“If they try to do it all at once and overhaul all of their systems, it will take forever,” Frew remarked. “What’s better is to focus on a well-defined pilot and align with a solutions provider like an Ingo Money, and APIs who can get them up and running quickly and without a lot of infrastructure rebuilding.”
The weather can change quickly – both literally and metaphorically. And, Edwards and Frew concurred, the direction of the wind when it comes to the future of insurance claims payments is pretty clear. The devastating effects of these most recent disasters didn’t create the need.
But it sure made the sense of urgency to change very clear – and hopefully just set the race for claims payments innovation off and running.
And Hurricanes Harvey and Irma seem like pretty good pilots to us.