By: Elisa Logan, Vice President, Growth
Check payments have been declining steadily for more than 20 years as consumers and businesses shift to faster, less expensive and more convenient forms of electronic payment. Today, only around 15% of all payments in the United States are made by check, compared to around 40% back in 20001.
But not in the insurance industry. Falling squarely into the “exception to the rule” category, 67% of property and casualty claims, 55% of auto claims, 64% of workers’ compensation claims, and 37% of healthcare claims are still paid with paper checks².
So why are insurance companies so far behind the payment curve? Do newer forms of electronic payment even make sense for the insurance industry? And if they do, what will it take to catch up? To begin answering these questions, it’s helpful to consider some of the biggest reasons insurance companies cling to paper check payments:
Claim payments are never simple transactions. Insurance companies have to confirm that they are sending payments to the right parties, that claim recipients are who they say they are, and that funds go into the correct accounts. With paper check payments, there is a tried and true process for meeting these requirements that haven’t changed in 50 years. To embrace electronic claim payments, insurance companies have to feel this same level of confidence in newer forms of payment—and create reliable processes for authenticating users, validating account information, and understanding their customers’ payment preferences.
Delivering remittance advice is easy when you can drop a paper form into an envelope with a check. But how do you provide that information when you’re sending payees an epayment? For many insurance companies, finding a reliable, efficient answer to this remittance advice question can create a sticking point that slows their move to electronic claim payments.
Multiparty claim payments add another payment twist that’s unique to the insurance industry. Insurance companies have spent decades developing and refining processes for managing complex multiparty check payments. Re-inventing this multiparty payment wheel for electronic payments can feel like a prohibitively expensive and risky task—especially when traditional banking partners can’t bring viable solutions to the table.
Insurance companies have always depended on banks to provide a safe, compliant foundation for their claim payment processes and systems. Although banks continue to provide the essential “payment rails” for transferring money, they are typically not well-equipped to offer the advanced, innovative and highly specialized technology solutions that make epayments a viable option in the insurance space. As a result, insurance companies that depend solely on traditional banking partners to drive the move to electronic claim payments are often left with a long list of gaps and missing capabilities.
Many insurance companies haven’t fully embraced electronic claim payments simply because they haven’t felt enough serious pressure to do so. Paper checks have provided a safe, workable solution for decades. And moving to electronic payments creates unique challenges for insurance companies that often seem prohibitive.
But that’s all changing. As insurance companies focus on providing better customer experiences, they have realized that policyholders simply expect faster, more convenient payment options—and that they will pay a high price in loyalty and satisfaction if they can’t deliver them. The emergence of fintech companies like VPay that focus exclusively on the insurance industry have also removed the barriers and squarely addressed the challenges that have prevented insurance companies from fully embracing epayments in the past. And as more insurance organizations embrace modern claim payment solutions, the significant business benefits and cost savings of epayment adoption are becoming more obvious and apparent.
As a result, a growing number of insurance companies are moving claim payment modernization near the top of their priority list—and turning to fintech companies like VPay to tackle the challenges and barriers that have prevented them from re-inventing their claim payment processes.