The Role Of Digital Payouts In Mitigating The Insurance Industry’s Business Continuity Risks

The insurance industry is all about risk mitigation, and not only when it comes to underwriting policies.

Averse to the risk of change, the property and casualty (P&C) insurance arena has been resistant to embrace electronic payments when disbursing funds to claimants.

Yet when the global pandemic hit, it became clear to the insurance industry that sticking to paper processes and check payouts can be riskier than embracing digitization.

Speaking with PYMNTS, Tom Reuter, director of digital payments at Deluxe, explored what it will take to migrate the P&C insurance carriers toward digital disbursements to business and consumer policyholders, and how embracing electronic payments can ease the financial burden for both carriers and customers as the threat of a second coronavirus wave looms.

Considering Digital Alternatives

According to Reuter, the conundrum of the insurance arena has been that while companies have embraced acceptance of electronic payments to make it easier for policyholders to pay premiums, adopting ePayments in the disbursements process hasn’t seen the same trajectory.

“Insurance carriers as a whole are averse to risk,” he said. “I think that’s why adoption of electronic payments has been a little slow.”

Yet even the most advanced risk mitigation efforts can’t entirely avoid the threat of disruption. That’s never been truer than today, with the unprecedented and largely unanticipated event of a global pandemic jumpstarting the digital migration organizations across verticals had previously delayed.

The P&C insurance business has faced some unique challenges as it responds to the shifting nature of claim filings. Field adjusters aren’t able to physically assess a case, noted Reuter, and over-the-phone strategies have slowed down the process of closing cases and issuing payouts.

The paper check isn’t speeding these processes along, either. According to Reuter, the majority of insurance carriers continue to use this disbursement method because it’s familiar to both the insurance carrier and policyholder. Yet without the ability to enter an office to print and mail checks, carriers are having to rethink their resistance to payments modernization.

Easing The Migration

It’s only been in the past 18 months or so that insurance carriers have begun to think seriously about digitizing outbound payments. But the pandemic has, for many, accelerated the adoption process as companies are forced to reckon with shifting needs of policyholders.

Claimants aren’t always able to leave their house to deposit a check at a physical bank branch, for instance. At the same time, distancing orders mean carriers’ employees can continue to issue disbursements while working from home.

Prioritizing Business Continuity

While the industry is aware of the importance of payments digitization to keep operations flowing, carriers continue to struggle with the disruption of shifting away from paper checks.

According to Reuter, approaching this digital transformation from multiple angles is key to easing friction.

For Deluxe, that means offering a platform through which a carrier can upload a CSV file that initiates an email notification to the claimant, which can then be directed to that portal to access their funds.

“It’s not the ideal solution for an insurance carrier,” Reuter acknowledged. However, this feature can be adopted within about 24 hours.

What makes this strategy valuable is that it can act like a “Band-Aid” for insurance carriers while they implement a more robust, application programming interface (API)-powered integration with a platform like Deluxe’s to holistically digitize their payouts processes. That’s a solution that can typically be up and running within several weeks.

In addition to facilitating electronic payouts that are seamlessly embedded within insurance carriers’ existing back-office workflows, this strategy further mitigates risks by promoting payments and customer data security. And by taking a multistep approach to payment digitization, insurance carriers can ensure business continuity in their own back office, while promoting policyholders’ financial well-being.

Understanding risk is at the crux of the insurance industry, and migrating to electronic disbursements amid a market pandemic can indeed expose insurance carriers to new risks. But increasingly, the industry is coming to understand that the risks of not modernizing disbursements can be far greater than change — for both carriers and their policyholders.

“When it comes to having the opportunity to work from home, having the [business continuity planning] plan in place, being able to handle all of these claims that come in — they don’t stop because of COVID,” Reuter said. “They’re going to continue to come, [and] having an electronic offering really makes a big difference for everybody.”