January 4, 2011
Insurance electronic billing practices slow to take hold
An in-depth study of billing and collections practices by U.S. insurance companies by Ward Group, a U.S.-based provider of insurance industry benchmarking and research studies, has found a preponderance of paper-based methods.
A diverse group of 74 companies participated in the study, which was sponsored by Cincinnati, Ohio-based Fifth Third Bank.
For most insurance companies, billing and related activities represent the most frequent types of interactions with policyholders. Ward Group conducted its study to assist companies in measuring their performance, develop staffing comparisons and establish operating benchmarks in this important area.
The study identified several notable payment trends. The majority of personal lines premium is paid on a monthly basis (40 percent), followed closely by annual payments. However, nearly 58 percent of personal premium is paid via paper cheque and only 33 percent is collected electronically via electronic fund transfer (EFT) or credit card. For commercial lines, 31 percent of premium is paid on a monthly basis, but less than 14 percent is collected electronically.
Jeff Rieder, President of Ward Group, says that electronic payment options in the insurance industry are often under-marketed, either due to the belief that policyholder preference is to pay via paper cheque or companies want to avoid paying credit processing fees. "Electronic payment options such as EFT and credit card had more than two times the number of annual transactions than other payment methods," notes Mr Rieder. "However, companies should also consider the benefits of higher policy retention with pre-authorized monthly payments against the costs of processing fees or additional service requirements."
Jodi McIntosh, vice president, treasury management officer at Fifth Third Bank, says that less than one percent of both personal lines and commercial lines policyholders receive bills electronically. "While most other industries have implemented green initiatives to reduce paper billing, the insurance industry significantly lags in this practice," notes Ms McIntosh. Driving factors for the lack of paperless billing included system limitation, policyholder preference and lack of prioritization for this practice. "Companies may want to consider the benefits of offering policyholder discounts to move to paperless billing," adds Ms McIntosh. Less than 6 percent of personal lines companies and two percent of commercial lines companies offered discounts for paperless billing.
Other notable trends identified in the study include:
• Less than 15 percent of payments were made online.
• Interactive Voice Response (IVR) payments were small, contributing to less than 3 percent of payments.
• A majority of companies surveyed accept credit card for personal lines payment.
• Credit card usage is gaining more acceptance for commercial lines payments.
• Companies with more than US$500 million premium had half the number of staff relative to premium.
• About 48 percent of companies involved in the survey plan to replace their billing system in the next five years.
• Direct bill is the dominant practice for both personal and commercial lines.
• Large companies outsourced delinquent payment collection efforts more frequently.
Mr Rieder predicts that credit cards and EFT will continue to grow as a percent of payment collections. In addition, the number of payment processed online will grow significantly in the next five years. The ability to view policy documents online, provide paperless billing and allow for online payment will be critical for future system enhancements and replacements. "Companies that provide easy payment services to policyholders and agents are likely to achieve the best operating results," says Mr Rieder.