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© 2020 Strategy Meets Action All Rights Reserved SMA Research Report DIGITAL PAYMENTS ARE RED HOT IN INSURANCE: Accelerating the Digital Transformation of Inbound and Outbound Payments An SMA Research Report Published Date: July 2020 Author: Karen Furtado, Partner

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Page 1: Accelerating the Digital Transformation of Inbound and ... · Accelerating the Digital Transformation of Inbound and Outbound Payments Outbound Payment Maturity Outbound payments

© 2020 Strategy Meets Action All Rights Reserved | www.strategymeetsaction.com

SMA Research Report

DIGITAL PAYMENTS ARE RED HOT IN INSURANCE: Accelerating the Digital Transformation of Inbound and Outbound Payments

An SMA Research Report

Published Date: July 2020

Author: Karen Furtado, Partner

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SMA Research Report 2© 2020 Strategy Meets Action All Rights Reserved | www.strategymeetsaction.com

Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

TABLE OF CONTENTSDigital Transformation Is Fueling Change 3

Today’s Current State of Payments 4

Inbound Payments

Outbound Payments

Digital Payment Maturity 5

Inbound Payment Maturity

Key Capabilities to Consider When Reimagining Inbound Payments

Outbound Payment Maturity

Key Capabilities to Consider When Reimagining Outbound Payments

Inbound/Outbound Vendor Landscape 9

Inbound Payments Vendor Landscape

Outbound Payments Vendor Landscape

Payments Use Case: The General Insurance

SMA Call to Action 12

About Strategy Meets Action 13

Use of Our Reports

About the Author

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SMA Research Report 3© 2020 Strategy Meets Action All Rights Reserved | www.strategymeetsaction.com

Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

DIGITAL TRANSFORMATION IS FUELING CHANGEThe shift in focus for insurers has been significant as they seek to meet customers where they are by building a bridge across the digital divide. The COVID-19 situation has positioned this topic front and center, and the pandemic has served to accelerate the move to digital payments. Before March of this year, the industry had picked up the pace of digital transformation in the payment space by focusing on improvements in inbound and outbound payments to meet customers’ needs. Becoming more customer-focused and creating a differentiating customer experience was essential. But since COVID-19, the focus, while retaining these requirements, has expanded. The need for improvements in operational tasks has magnified the scope of advances needed in this area.

Needing an employee to come into the office to handle inbound checks that were unable to be processed via lockbox or, going a step back from that – having checks arrive in the office, unnecessarily increased the exposure of an employee to COVID-19. On the outbound payment side, many insurers required an employee to come into the office to print off claims and refund checks using the MICR printer in the office. There was no way to shift these tasks to a work-from-home environment, but it was still necessary to perform these business functions.

The purpose of this paper is to explore the shifts in inbound and outbound payment needs and capabilities in insurance, including a sampling of the vendor landscape.

In January 2019, SMA published a paper titled: The Payment World Explodes: The Need for Digital Customer Experiences Are Driving Payment Innovation. That report predicted that digital payments were poised to increase significantly due to the focus on the customer experience.

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SMA Research Report 4© 2020 Strategy Meets Action All Rights Reserved | www.strategymeetsaction.com

Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

TODAY’S CURRENT STATE OF PAYMENTS

Inbound PaymentsInsurers have been accepting inbound payments for years; however, there has been an increased focus on modernizing these capabilities over the past couple years. The basic approach of accepting payments by credit card and check are the minimum standard – certainly for personal lines, and many insurers are considering credit card payments in the small commercial space. That said, there are new capabilities that insurers are offering in the market that pushes one to reconsider if a change is needed. There is now an emphasis on the truly digital customer experience – with a wide variety of communication methods and ways to manage the payment process. Dynamically managed customer notifications and payment processes such as text pay and digital wallets are gaining in popularity. In some ways, COVID-19 has accelerated the concepts of mobile and touchless payments. It has compelled consumers to consider a higher usage of digital wallets that promote a whole new aspect of customer engagement and interaction.

Outbound PaymentsThe transformation of the payment landscape reflects an urgency to move into a more advanced digital payment state. In data sourced from Pymts.com, we see that there is a high demand from customers to have choices in how they are paid and how fast the payments are received. Still, over 50M consumers in the US are paid via a check, and this does not include the tens of thousands of third-party vendors that are often receiving payments via check. This really highlights the upside opportunity in the outbound payment area to re-envision a digital experience that can offer a variety of payments for the way each party prefers – the policyholder, claimant, third-party service provider, or agent.

Insurers are accelerating their responses to these demands. The Market Pulse Survey we completed in April 2020 reviews the acceleration in digital outbound payments. Figure 1 shows that the focus in personal lines is increasing, with 81% of insurers moving forward with investments (14% accelerating plans and 67% staying the course). For commercial lines, 57% of insurers are moving forward (43% staying the course and 14% accelerating). Many of these companies are looking to make decisions and implement solutions within the next twelve months. Although much of the outbound focus is on the claims experience, other areas need to be considered, such as premium refunds and commissions. Change is certainly in the air.

Figure 1. Outbound Payments in 2020

52M

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SMA Research Report 5© 2020 Strategy Meets Action All Rights Reserved | www.strategymeetsaction.com

Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

DIGITAL PAYMENT MATURITY

Inbound Payment MaturityThe entire billing and remittance process within insurance continues to change with the times. Core billing systems provide increased flexibility for the policyholder to select their payment dates. And, as inbound payment options mature, some foundational capabilities (that have been in the industry for several years) are typically offered to customers. These capabilities are now moving from operational to strategic, where they redefine the process as they engage with the policyholder.

The stages of maturity of inbound payments include: Laggard, Mainstreamer, Mover, and Leader. In Figure 2 below, one can see how the progression of payment capabilities – the actual payment form and the movement from customer service to customer experience – is being formed in the inbound payment space.

Figure 2. Inbound Payments Maturity

LAGGARD MOVERMAINSTREAMER LEADER

Invoices mailed

Payment via check, echeck, ACH, credit card

Submission of payment via mail, website

Mail and/or email of invoices

Payment via check, echeck, ACH, credit card

Utilize lockbox processing

Submission of payment via mail, website, portal, app

Digital invoice experience

Management of notification, due date, payment reminders, payment confirmation

Payment via check, echeck, ACH, credit card

Recurring payments with payment method preference stored

Utilize lockbox processing

Submission of payment via mail, website, portal, app, text

Completely tailored digital experience – customer choice and management

Digital invoice experienceManagement of notification, due date, payment reminders, payment confirmation, payment preference

Payment via check, echeck, ACH, credit card

Multi-policy management – direct payment for a range of policies

Recurring payments with payment method preference stored, ability to easily store and select payment method for each payment

Utilize lockbox processing

Submission of payment via mail, website, portal, app, text, eWallet (Apple Pay, Google Pay, PayPal), virtual payments (Zelle, Venmo)

INBOUND

Source: Strategy Meets Action 2020

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SMA Research Report 6© 2020 Strategy Meets Action All Rights Reserved | www.strategymeetsaction.com

Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

Key Capabilities to Consider When Reimagining Inbound PaymentsCustomer access – Customers need to be able to make payments through a variety of channels, such as IVR, call center, or online. With the exception of the call center, these need to be accessible 24/7.

Automated customer communication – Proactive communication with customers is a must, including payment reminders and payment confirmation.

Digital customer experience – Customers need to be notified of an invoice electronically through multiple different options and have the ability to make payments through several payment options. The focus is on tailoring to unique customer needs.

Variety of payment types – Checks, ACH, and credit/debit cards are baseline; other payment methods are differentiators. New methods are continually becoming available. And insurers are utilizing them, both to service the new on-demand and parametric policies in the market and introduce new digital payment methods to all of their customers.

Mobile payments – This is the fastest-growing new payment method and is offered in response to the expectations that customers bring with them from other industries. It encompasses several different options, such as pay by text, eWallet technologies, and an insurer’s own branded app.

Recurring payments – The ability to set up and, ideally, schedule recurring payments is a critical customer need.

Integrations with modern billing systems – Having a prebuilt integration with a modern billing system expedites the implementation process as it shortens development timelines. This provides a win/win scenario for the carrier, since the risk and timeline of the project are both reduced.

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SMA Research Report 7© 2020 Strategy Meets Action All Rights Reserved | www.strategymeetsaction.com

Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

Outbound Payment MaturityOutbound payments are the focus of many companies’ transformation initiatives. The digital journey in outbound payments had been picking up steam over the past 24 months. But, with the customer experience needs and operational inefficiencies that have been revealed throughout the COVID-19 crises, outbound payment has become the lightning rod of digital transformation. Many companies will start with a minimum set of capabilities that include ACH, but insurers need to look at the advancing capabilities to truly meet the needs of the customer. Speed of payment is critical!

The capabilities surrounding outbound payments have changed the most, in both the variety of the payment options provided by the insurer and the management of the third-party vendor payments. Some payment options will not be appropriate for all circumstances, such as offering Zelle/Venmo/Square Cash App payments. The challenges for these payment options are the daily/monthly limits that are placed on this method of payment as well as the security concerns of a mistaken identity leading to payment to the wrong individual. There are ways to manage this process, such as requiring the payee to authenticate themselves. One key to the outbound payment realm is to offer the right option at the right time!

The stages of maturity of outbound payments include: Laggard, Mainstreamer, Mover, and Leader. The progression in advancement of outbound payment capabilities is illustrated in Figure 3 below. The focus is also on payment options and the movement to a digitally-based customer experience in the outbound space which encompasses premium, commission, and claims.

Figure 3. Outbound Payment Maturity

LAGGARD MOVERMAINSTREAMER LEADER

Payment method: check

Payment method: check, ACH, preloaded/reloadable credit card

Payment method applies to claimant and third party vendors

Payment choice offering digitally presented

Payment methods: check, ACH, preloaded/reloadable credit card, debit card

Choice directed by insurer with options presented by adjustor or AP

Expanded payment methods (check, ACH, credit card) offered to third party vendors

OUTBOUND

Fully tailored digital payment hub experience

Various payment options presented that are custom based on the line of business and type of claim/payment being made

Payment methods: check, ACH, prelaoded/reloadable credit card, debit card, virtual payments (Venmo, Zelle, PayPal)

Expanded payment methods (check, ACH, credit card) offered to third party vendors

Digital recurring payments offered with payment method choice that can be claimant directed

Source: Strategy Meets Action 2020

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SMA Research Report 8© 2020 Strategy Meets Action All Rights Reserved | www.strategymeetsaction.com

Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

Key Capabilities to Consider When Reimagining Outbound PaymentsPayment anytime, anywhere – The old paradigm of “the check is in the mail” is insufficient for today’s needs. The speed of the claims lifecycle (and how easy a claimant perceives it to be) is a key differentiator for both individual and business customers. Being able to issue payments anytime, anywhere, and through digital channels is critical to meeting customer expectations.

Payment notifications for claimants, third parties, and policyholders – Payment recipients want to know when they will be paid. Part of the frustration of filing a claim is the time spent waiting for a payment to be issued, arrive, and become available after deposit. With customizable notifications, insurers alleviate this pain point for both claimants and any third parties involved.

Documentation and compliance – Both claimants and insurers benefit when detailed documentation and explanations accompany a payment. This ensures that the proper documentation has been exchanged and is easily accessible if the claimant or issuer needs to refer to it.

Multiple payment methodologies – No single payment methodology is going to be perfect for every claimant, third party, or circumstance. Insurers need to respond to changes in customer preferences based on a given claim situation without going through process re-engineering. The flexibility offered through a payment hub provides insurers with an ever-expanding set of payment methods without having to change internal systems.

Prebuilt integrations with modern claims systems – Having a prebuilt integration with a modern claims system expedites the implementation process as it shortens the development timelines. Overall, this provides a win/win scenario for the carrier as the risk and the timeline of the project are reduced.

Payment hub experience – Rather than orchestrating one integration at a time to provide new payment methodologies, it is advantageous to utilize a payment hub experience. New payment experiences can then be a plug and play situation that provides for the quick implementation of the new capability. Having a payment hub also provides for the flexibility of adding new payment options without impact on the mission-critical modern core system.

Preparing for new payment innovations – The technologies underpinning payments in the digital world are changing rapidly. New digital payment methods are being provided every year. Ideally, a payments provider will support the payment options that insurers need today as well as prepare them to embrace the new possibilities that are still to come.

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SMA Research Report 9© 2020 Strategy Meets Action All Rights Reserved | www.strategymeetsaction.com

Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

INBOUND/OUTBOUND VENDOR LANDSCAPEWe see the digital payment landscape continually shifting with the addition of new entrants. Also trending within an explosion of companies that have an outbound payment focus is the ability to offer both an inbound and outbound experience. These vendors do have varying depths in their capabilities that one should be mindful of when evaluating vendors.

Inbound Payments Vendor LandscapeEven though inbound payment providers have had a well-established capability for several years, there are new payment methods and digital communication capabilities that have raised the bar. Some of the solutions available to the insurance industry include horizontal capabilities that have been developed for other industries, such as electric or cable bill payment.

There are two categories of solutions that focus on inbound payments:

Ebill/Epay: These solutions provide a full invoice management and payment experience. There will be a range of capabilities among solutions in this area that can manage communications with a policyholder and provide the new digital communication methods that are profiled in the capabilities area of this report.

Payment APIs: These solutions function behind the scenes and provide a callable credit card payment service that manages all the compliance features. Many of the solutions that are also categorized as ebill/epay can provide an API to be utilized within a policy and billing application.

Figure 3. Sampling of Solution Providers That Are Actively Servicing the Insurance Market

Payment API’s

Ebill/Epay solutions

Source: Strategy Meets Action 2020

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Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

Outbound Payments Vendor LandscapeAs the need for outbound payment capabilities has increased, so has the vendor landscape. Figure 4 is a sampling of solution providers that have established insurance expertise – both for single function payment options and managing multiple options through a single vendor experience.

Figure 4. Sampling of Solution Providers That Are Actively Servicing the Insurance Market

Source: Strategy Meets Action 2020

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SMA Research Report 11© 2020 Strategy Meets Action All Rights Reserved | www.strategymeetsaction.com

Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

Payments Use Case: The General InsuranceThe General has transformed their outbound claims payment experience to be as digital as the claimants, vendors, and lienholders want it to be. They provide the electronic documentation with each payment experience.

The General implemented InsurPAY as an outbound payment hub in claims that offers a wide variety of outbound payment options to claimants.

A tailored payment experience to the claimant was presented with up to three options offered that were best fit for each claim payment situation.

Approximately 40% of claims payments to claimants in 2019 were paid in a method other than a check.

Claim payment issue to receipt time was cut by five days.

$1M in operational costs were saved in 2019.

The Net Promoter Score increased by five points in 2019, specifically due to the digital improvements made.

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SMA Research Report 12© 2020 Strategy Meets Action All Rights Reserved | www.strategymeetsaction.com

Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

SMA CALL TO ACTIONThe need for insurers to provide a completely digital experience for both inbound and outbound payments has undoubtedly accelerated in the past twelve months. The reasons have shifted from cost savings and a focus on customer experience to include operational efficiency. This trifecta of solid business factors has fast-tracked the need to respond with an urgency that has rarely been seen.

Along with this heightened urgency, insurers need to be aware that the world of digital payments is experiencing a shift of its own. New payment methods are being brought to the wider consumer market every year and adopted in the insurance markets more quickly than ever before. Just a couple of years ago, few would have considered Venmo or Zelle for claims payments. But now, for the right type of claim, these may be some of the best payment options. The same is true with wallet-pay capabilities for inbound payments. Choice is the key – which makes this challenging. Insurers must understand which options work best in different circumstances – line of business, type of claim, or amount of money to be paid.

SMA recommends the following considerations when developing a future-focused payment strategy.

Incorporate digital payments – both inbound and outbound – as a key element of your digital transformation journey. Understand the expanded payment capabilities that will support your desired state for customer experience and operational efficiencies. The modernization of both inbound and outbound payments is a tool that can be used to connect with policyholders and claimants in a way that meets their expectations.

Investigate the inbound payment methods that best suit the customer profiles and specific lines of business you support. A wider variety of inbound payment methods, especially consumer-oriented ones like mobile and pay-by-text, have strong potential for insurers writing personal lines. Small commercial lines carriers could see similar benefits to those found in personal lines.

Pursue outbound payment alternatives to checks. It is time to modernize the claims process to support the real-time payment paradigm that is expected by the claimant, as well as a more efficient payment process to support the needs of third-party vendors and multiple payees. Opportunities on the horizon include subrogation payments.

Consider whether a payment hub is right for your business needs. Payment hubs that externalize the entire payments process are a good fit for insurers with a multitude of disbursement methods.

Investigate the compliance features that a provider can bring to the table. When faced with daunting compliance requirements, finding a third-party to provide the full scope and safety of payment options can be a real advantage.

The focus on customer journeys, seamless digital experiences, and operational efficiencies makes it the perfect time for insurers to move forward with advancements in digital payments. This is one investment that can translate into a winning scenario for insurers on three fronts – delighting the customer, lowering costs, and improving the efficiency of the operations. The time to take a step forward in digital transformation is here.

“We have reached a true tipping point in the payment capabilities available to insurers today. The rise of digital payments and the ecosystem that supports them has combined with insurers’ needs for cost cutting, streamlining, and providing new customer experiences. This is an area of great opportunity for insurers of all sizes and lines of business.”

Karen Furtado, Partner, SMA

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Digital Payments Are Red Hot in Insurance: Accelerating the Digital Transformation of Inbound and Outbound Payments

ABOUT STRATEGY MEETS ACTIONAt Strategy Meets Action, our clients advance their strategic initiatives and accelerate their transformational journeys by leveraging our forward-thinking insights, deep vendor knowledge, and vast industry expertise.

The business benefits from an engagement with SMA are:

Clarity on Strategy: Gain an outside-in perspective on trends relevant to your strategies and plans.

Transformational Focus: View your strategic initiatives and investments through a transformational lens.

Informed Decisions: Obtain business and technology insights aligned to your strategies, focus, and investments.

Strategy Meets Action is an advisory firm that works exclusively with insurers and vendors in the P&C market, offering advisory retainers and project-based consulting services.

Click here for www.strategymeetsaction.com

Use of Our ReportsThe entire content and context of this research report is subject to copyright protection, with all rights reserved. Reproduction or distribution of the report, in whole or in part, without written permission is not allowed. The material and observations contained in this publication have been developed from sources believed to be reliable. SMA shall have no liability for omissions or errors and no obligation to revise or update any data or conclusions should new information become available or future events occur. The opinions expressed in this report are subject to change without notice.

About the AuthorKaren Furtado, Partner, specializes in solving core system issues in insurance through the application of modern technology. Her over 30 years of experience in the industry have established her expertise in policy administration, rating, product configuration, billing, and claims and given her unique perspective on the role that maturing and emerging technologies can play within insurance.

Karen can be reached at [email protected] or 1.978.239.2741.

Follow Karen at karenfurtado on LinkedIn and @karenmfurtado on Twitter.

© 2020 Strategy Meets Action, Inc. USA. May not be reproduced by any means without express written permission. All rights reserved.