Payment innovation to boost insurance financial performances
Published: 9 June 2020
The insurance sector should take note of the payment innovation taking place in the payment world because this could provide concrete solutions to their concerns in terms of financial performances.
For treasurers and financial directors in the insurance industry, the challenges associated with cash flow optimisation, delinquency management, reconciliation and claims payout efficiency are still very much a hot topic, and will remain so throughout 2020.
How can European initiatives like the Payment Services Directive 2 (PSD2) and Instant Payments make life easier for insurance and broker treasurers while improving customer satisfaction?
European initiatives to make life easier for insurers
Wire transfer is a non-reversible payment method because it is initiated by the payer. It’s therefore considered a suitable alternative because it guarantees payment, giving insurer and broker treasurers better visibility of their cash flows, optimised revenue collection and improved financial risk management. As a result, insurers and insurance brokers can minimise declined payments and the costs associated with processing them.
Wire transfer is also an option worth considering to reduce costs. Unlike bank card payments, which are widely used, the costs of processing wire transfers are considerably lower as there are no fees to pay to Visa and Mastercard.
There’s no denying that wire transfer is a rare form of payment due to the complexity of the customer path: To transfer money to a creditor, the customer must know the recipient’s IBAN, add them as a payee and then wait for approval from their bank before they can transfer any money. But PSD2 has introduced a new payment service that revolutionises wire transfers – the PIS (Payment Initiation Service). This offers an enhanced customer experience because it enables bank-to-bank transfers, bypassing all of these steps. The customer is simply redirected to their banking space where they complete strong customer authentication using a code only they know to initiate the transfer to the desired recipient. And, since the PSD2 standards dictate that strong authentication must be used for this payment service, the risk of fraud is practically non-existent.
PIS could be potentially coupled with the Instant Payment service too. This would make funds almost immediately available to insurers (in under 10 seconds), 24 hours a day. Treasurers will therefore be able to monitor their cash flows in real time.
Improving customer satisfaction with payment innovation
Instant Payment is an opportunity for insurers and insurance brokers to provide their customers with high added-value services. In many cases, customers may find themselves unable to cover the initial outlays when they are involved in an incident, such as repair costs, medical fees or general assistance.
To remedy this, insurers and brokers can use Instant Payment to immediately transfer the necessary funds to the customer, allowing them to better deal with emergency situations.
With car insurance for example, a customer who needs breakdown assistance on a bank holiday will be able to instantly receive the necessary funds to cover their initial outlays. They no longer have to wait 2 or 3 days to be reimbursed, which is highly reassuring and consequently improves the claimant’s satisfaction with the service.
However, an Instant Payment-based claim payout service would not be entirely effective without rapid anti-fraud checks, a customer services department on hand to respond to requests, and an efficient handling process.
Therefore, in addition to choosing the right payment innovation to overcome the challenges faced by their treasurers, insurers must also implement measures to provide a seamless customer experience and optimised financial management for the company.