Digital transformation affects every corner of the insurance industry, but one area has not kept pace. The payment process still holds untapped potential. In many cases, payments remain an antiquated and complex process, standing out in a modernized industry where seamless digital transactions are expected, and customer satisfaction hinges on user-friendly interfaces.
This presents both an opportunity and a challenge to insurers as they work to offer fully digitalized payment experiences across the ecosystem, from the first premium payment to claims payouts. A fully digitalized payment experience means moving away from antiquated processes like paper checks and ACH bank drafts to instant, real-time payment options encompassing everything from credit cards to Apple Pay to cryptocurrency. Offering a modernized digital payment experience is no longer a nice-to-have feature, rather, it has become a necessary part of every insurer’s modernization strategy to improve customer satisfaction and retention while driving long-term growth.
The Growing Demand for Digital Payments in Insurance
The perception of insurance has changed in recent years. It is no longer just about policy and coverage options — it is now about the experience. Consumers, especially younger generations, expect digital-first, seamless, simple customer experiences from every digital interaction, including from their insurers. Policyholders want the convenience of making premium payments online, anytime, and research found that 81% of respondents want to use a mobile app for routine tasks.
For insurers, there are several significant benefits of digitalizing payments including:
Enhancing the customer experience.
Customer satisfaction is closely linked to convenience. In fact, research shows that customers who have the opportunity to engage with multiple channels with their insurers have a 25% higher retention rate. By digitalizing their payment workflow, insurers can reduce friction and delays in the payment process and help ensure customers have a positive interaction at each touchpoint. Policyholders appreciate the convenience of making payments when they want, using whichever payment method they prefer.
Insurers can reduce the potential for billing-related complaints by modernizing the process. Digitalizing payment workflows reduces human errors, eliminates bottlenecks, and shortens cycle time, improving customer satisfaction and loyalty. With an omnichannel payment process, customers can manage their premium payments through self-service channels, saving time and increasing satisfaction.
Improving operational efficiency and reducing costs.
Processing payments manually, including handling time, processing fees, and reconciliation errors, drive up costs and cycle times. Digital payments, however, streamline the entire payment lifecycle from start to finish. Automation reduces manual data entry, saving time and costs, and digital payments often have lower processing fees than traditional methods. Delays in processing new business payments, NSF transactions, and processing paper checks on premium payments all have negative consequences for insurers by providing coverage when funds may not be available, extending policy cancellation windows, and increasing earned but uncollected premiums, all impacting loss ratios.
Competitive edge from omnichannel payment flexibility.
Research shows that consumers who use multiple channels to interact with their insurers are 21% less likely to cancel their policies. Consumers prefer flexibility and the option to choose how to engage with businesses they work with, including their insurers. This flexibility can be built into the payment process in various ways, such as offering multiple payment methods and structures or allowing customers to set up auto-pay or make a one-time payment. For many insurers, the capability to offer a consistent, transparent experience often stands out in the competitive marketplace.
Security, privacy, and compliance.
Data privacy and security concerns increase during any digitization project. Insurers should create processes and safeguards around protecting policyholder data, remaining compliant, and preventing fraud. Best practices around securing data include using encryption methods, tokenizing secure payment details, and adhering to industry-wide compliance standards, especially data governed by PCI-DSS. Policyholders need clear communication about security and data privacy measures to feel confident that their data is safe, and transparency builds trust.
Immediate claims payments.
The claims process is part of the insurer fulfilling its promise to the policyholder to pay covered losses. However, it is often a slow process to issue and mail a paper check, with the potential for delays and frustration for policyholders. Digital claims payments, including multiple options like instant deposit, digital wallets, and payment cards, offer significant improvements to cycle time and customer satisfaction and transparency that allows policyholders to track the status of their claim or payment in real-time. This is a critical step as almost 60% of respondents say they would switch insurers to get an automated service that would tell them exactly where their claim is in the process.
Embracing a Digital Path Forward For Insurance Payments
Digitalizing the payment process is critical to an insurer’s modernization path. Digital payments improve the customer experience but also help streamline operations, reduce errors, and lower cycle time. For policyholders waiting for a claims payout or wanting to make a premium payment, convenience and transparency are important. For insurers, delivering secure, seamless, omnichannel payment options can be a competitive advantage in a crowded marketplace, improving retention and brand loyalty. Embracing a digital-first payment experience is the way to meet customer expectations while improving service and preparing for the future in an increasingly digital world.
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