Unlike other types of insurance claims, individuals who file a homeowners claim know that cash reimbursement is imminent. Even the promise of a claim payment within 48 hours isn't swift enough to satisfy an individual who has been forced from their home.
That's why last December a claims adjuster for Lincoln, R.I.-based Amica Mutual Insurance Co. could've been excused for feeling like Santa Claus. Days before Christmas, a house fire ravaged the home of an Amica Mutual policyholder, leaving the family safe, but nonetheless cold and out on the street.
Within the normal time cycle, a carrier would draft a check for personal emergency funds and deliver it in a day or two. But on this cold night, the adjuster held something far better than the promise of a check: he clutched a debit card processed and authorized via the Web from his home PC and issued in the family's name.
With plastic in hand and a pre-determined monetary value stored on the card, the family had instant access to funds to arrange for temporary lodging, food and new clothing.
Although industry figures are not available, Amica Mutual is among a small but growing number of carriers that, rather than endorsing checks to policyholders, are endorsing claims payments via credit or debit card.
Amica Mutual's ClaimCard program was launched days before Christmas last year as part of a pilot that has since been expanded nationwide.
Developed by ClaimCard, an operating unit of Sunrise, Fla.-based technology company WildCard Systems Inc., Amica's Visa-branded card enables the holder to withdraw cash straight from an ATM or make purchases at a host of local retail locations that accept the card.
"Amica is committed to technology that leverages the Web, and we believe that ClaimCard's leading-edge characteristics will help us better serve our customers," says Mark Divoll, assistant vice president at Amica Mutual.
"We need to do a better job to provide instant purchasing power to an insured at a time when they need it most. Now we can load $5,000 onto a card for a family that suffered a fire and then re-load additional funds in the days and weeks ahead as the claim process is completed."
Stored-value claim cards appear to be a failsafe proposition for both carrier and policyholder. For the carrier, a claim card lets them reduce administrative costs associated with printing checks.
This is particularly true for insurers that market insurance coverage such as homeowners, long-term disability and worker's compensation-coverage that often involves the issuance of multiple claims payments throughout the life of the claim.
Fantastic plastic
For the policyholder, a claim card not only provides instant cash, but flexibility over how and where the home repair money is spent. The concept is helping eliminate restrictions that bind a policyholder to a limited number of contractors.
"This type of claims payment appears to have a lot of flexibility and accountability," says Todd Eyler, senior analyst for Cambridge, Mass.-based Forrester Research Inc.. "While there is tremendous upside to this form of paying claims, I predict that it will remain largely a niche proposition, with homeowners insurance being the most ideal niche. I can't see a carrier issuing a claims card to settle an auto claim."
To Amica Mutual, the program has been perceived as a niche offering, targeted primarily toward homeowners policyholders. Throughout the first nine months of 2001, Amica had issued only about 150 claims cards to policyholders, Divoll says. Next year, Amica anticipates that it will issue a greater number of claim cards to homeowners policyholders as marketing behind the program improves. Ultimately, Amica could expand the card into other lines of insurance, Divoll notes.
Another advocate of stored-value cards as the preferred method of payment for homeowners claims is The Hartford Financial Services Inc.
In January 2001, the Hartford, Conn.-based provider introduced The Hartford Insurance Claim Card as part of a 25-state pilot project that wrapped up in late September.
Embossed with a Visa logo, the card is accepted at more than 19 million locations worldwide that accept Visa, including retailers, ATMs and banks. Hartford's chief goal: to speedily provide money to customers in need.
"When disaster strikes, homeowners need to have quick and easy access to funds, whether it's to pay for temporary housing, living expenses or repairs," says Tony Ruszala, director of claims, financial services, The Hartford.
"The whole impetus for starting this was to apply new technology to creating a unique experience for policyholders. If a customer receives a claim reimbursement check on a Saturday afternoon, they'll probably have to wait until Monday to cash it. This creates problems if they need to move quickly on a home repair, such as a roof."
To activate the card, a policyholder calls a toll-free number listed on the back of the card. Until the stored value is exhausted, they can also perform balance inquiries by calling a customer service number or by logging onto a Web site hosted by the carrier or the card issuer.
All in all, Ruszala labels The Hartford's Claim Card initiative a success in that more than 90% of the customers who opted to tap funds via the card indicated they were significantly satisfied with the way the program operated.
Because The Hartford presently is evaluating the program, Ruszala declined to name its partner for the pilot program, as well as what the company's intentions are for the future. "We are proceeding cautiously," Ruszala says. At press time, he expected the company would analyze the results and determine by December 1 how it would proceed.
The cost equation
When it comes to choosing a claims card program, carriers have a host of options. By most accounts, the universe of claim card developers is small, with several major players holding a command over the market.
A program developer might interact directly with a carrier or assume a behind-the-scenes role. Amica Mutual, for instance, interacts directly with ClaimCard personnel. About 250 to 300 Amica Mutual claims representatives-including adjusters and other home-office support people-have regular access to ClaimCard's technology.
After being issued a password and ID to a secured area on the ClaimCard Web site, these individuals can then load value onto cards before they are issued to policyholders.
Columbus, Ga.-based TSYS offers a different model. TSYS forms alliances with financial institutions, who in turn market the program to carriers, with TSYS remaining behind the scenes.
"Once a program is established between a bank and a carrier using our claim card, our role is to provide ongoing Web hosting capabilities for the customer," says Tim Johnson, associate director of sales for TSYS.
"When a claims representative logs onto a Web site to load funds onto a card, they are accessing our technology," he says.
Once a program is established, an insurer invariably pays both up-front contract fees and various ongoing fees that involve the costs to produce and distribute cards to policyholders. Amica Mutual's Divoll won't reveal what Amica Mutual pays ClaimCard-either in up-front costs or ongoing fees.
The Hartford's Ruszala also declines to reveal the capital investment costs that The Hartford assumed.
From the card developer's perspective, Johnson of TSYS would only shed light on a carrier's costs this way: "There are a cafeteria of options that a carrier chooses from," he explains. "This makes it hard to pin down the costs."
"For instance, to encourage a carrier to sign up, a financial services provider might waive or reduce up-front fees, but might manipulate card issuance fees," he adds.
Whatever the costs to carriers, one thing is certain: Stored-value claim cards are not going to break the bank. And as claims are paid quickly, they might even generate new business and spur high customer retention rates.
Most industry experts agree that the key with stored-value cards is to issue them as quickly as possible, or the purpose of launching such a program is defeated.
An Amica Mutual claims adjuster, for instance, is currently authorized to store value onto cards immediately after a claim has been filed, which puts a card into a policyholder's hands within hours of the incident. The Hartford is working to enable claims personnel to issue cards immediately, Ruszala says, but for now it takes about 24 hours for The Hartford to issue a card to a policyholder. "We envision that in the future our adjusters in the field will be able to issue cards on the spot.
"But now, when a claim is called in, the people in our banking and taxes unit receive the vital data on the policyholder, and then log onto the Web to load values," Ruszala says. "After keying in a value, they push 'send,' and the data is handed off to the card developer where the card is embossed and mailed out."
During the pilot, one insight The Hartford claims unit gleaned was that most policyholders were uncomfortable receiving claim cards loaded with a significant amount of money.
"Even though the cards are fully-secure with a PIN number and other authorization protocols, we do not store more than $10,000 onto a card," Ruszala says.
A hard sell?
Although advocates say stored-value cards have some positive attributes, there's one significant drawback: the concept represents uncharted territory for consumers, many of whom are creatures of habit. As a result, many still prefer receiving a check from their carriers following the report of a claim.
"The resistance reminds me of how prepaid debit cards were embraced slowly and hesitantly several years ago," Ruszala declares.
security concerns
Security is also a concern to cardholders. But if a claim card ever fell into the hands of an unauthorized user, card issuers such as TSYS' Johnson say the only way that funds could be tapped at an ATM would be if the party knew the PIN. If an unauthorized user tried to use the card at a retail location, a savvy checkout clerk could detect fraud through a bogus signature.
For the customers who endorse the idea of stored-value claim cards, "it represents a tremendous amount of empowerment," Ruszala says. One advantage of a claim card is that it enhances recordkeeping. The card issuer mails a statement to the customer that itemizes all the expenses incurred during the repair-data that the carrier is not privy to.
In the future, The Hartford hopes to expand the overall scale of the program and make it available for other lines of insurance, particularly for multi-payment claims, Ruszala says.
Ultimately, The Hartford also hopes to deploy wireless devices, such as personal digital assistance (PDA) technology, to enable a claims adjuster to instantly issue a card on site.
An adjuster, for instance, would be supplied with a bundle of inactive cards and through the course of a business day activate them on a claim-by-claim basis. A PDA would enable the adjuster to transmit policyholder data back to a claims office to process the claim electronically.
"The emphasis with this program is on improving the customer experience," Ruszala adds. "We have a mission to not just meet but exceed expectations when it comes to customer interactions."
