Recurring payments offer the insurance industry a simple, yet extremely powerful, customer service solution that has the potential to yield hundreds of millions of dollars in cost savings, improve cash flow, increase productivity and provide a competitive advantage.Also known as automatic bill payment and direct payment, recurring payments enable customers to authorize companies to automatically charge the amount owed on a payment card on a regular basis. Payments may be collected monthly, quarterly, or at whatever interval the consumer and the service provider establish.
Recurring payments are tailor-made for insurance providers that mail paper bills at regular intervals to millions of customers and then have to process a corresponding number of payments.
With more than 2,000 insurance companies in the United States alone, the growing need to differentiate billing and payment options is becoming paramount to remain competitive.
Improving cash flow
According to a recent study by Jupiter Research, the traditional billing and payment method costs service providers more than $1 per transaction-including the expenses associated with preparing and printing paper bills and envelopes, postage, and manually processing paper check payments.
This same study suggested that electronic bill presentment and payment, as well as recurring payments, can slash those costs dramatically to roughly 40 cents per bill. Recurring payments not only reduce the amount of paperwork generated, but also improve productivity and operational efficiencies by virtually automating the billing process.
Other benefits of recurring payments for insurance providers are:
- Guaranteed payments. Using recurring payments, companies receive payment in full and on time.
- Improved cash flow and collections. Recurring payments are settled in one to three days, providing faster access to funds and minimizing the risk of past-due accounts.
- Reduced exposure. Costs associated with redeposit fees and processing additional transactions are lowered or eliminated as recurring payments are authorized in advance.
Similarly, while providing your organization with a competitive advantage to help attract new customers and retain current customers, a recurring payment program delivers other benefits to your customers.
For example, there is the convenience and security of knowing bills are paid on time, automatically. And, there is the time and cost savings of not having to write checks, purchase stamps and envelopes, and make trips to the post office or mailbox.
Industry statistics indicate that recurring payments present a large opportunity for the insurance industry.
A 2003 MasterCard survey of consumers shows roughly one-third of insurance policyholders use payment card recurring payments as a method to pay their bills, as opposed to more traditional methods, such as checks, cash and online banking.
This report also suggests that 30% of consumers would switch providers for the option to use payment card recurring payments to pay their insurance bills, assuming all other factors were equal.
Insurance providers can leverage consumer preference for electronic payment methods with efforts to capitalize on the convenience and speed of payment cards to increase the satisfaction of current customers and attract new policyholders.
Reaping the rewards
In addition to significant cost savings and productivity gains, recurring payments can also offer a competitive advantage to companies in the insurance industry.
Recurring payments can also help strengthen customer loyalty and retention through the increased flexibility and convenience it affords consumers in paying their insurance bills.
Additionally, consumers enjoy the prospect of earning meaningful rewards for using a payment card. For example, in the current low-interest rate environment, consumers who use a payment card that offers a 1% rebate on purchases might see a better return on the payment of their insurance bills than they would if they took the same amount and put it in a savings account.
With insurance industry experts forecasting sluggish growth, recurring payments can help offset any economic slowdowns.
For insurance providers, a changing marketplace, competitive dynamics and increased consumer demand for value require innovative responses and new approaches to doing business.
As the population ages, the need to ensure retirement peace of mind has grown, while increased consumer sophistication has diminished brand loyalty.
By offering consumers expanded payment options, such as recurring payments, insurance companies can generate hundreds of millions of dollars in cost savings, significantly improve bottom-line results, and reinforce loyalty with value-added customer service as well as competitive advantages.
Adrienne Chambers is vice president of North America program development for MasterCard International.
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