Digital payments are a growth opportunity for P&C insurers

Amid rising competition, economic uncertainty, and soaring customer expectations for speed and convenience, digital payments capabilities have emerged as more than just a better way for property and casualty insurers to collect premiums, disburse claims, and reconcile transactions. They're quickly becoming a competitive opportunity for carriers seeking to boost customer satisfaction and retention, cut costs, and enable next-gen operating models.

As the world has grown steadily more digital over the past decade, the ability to make and receive payments through mobile and online channels has become an essential element of modern-day business. According to McKinsey, nearly nine in 10 U.S. consumers now routinely use one or more digital payment methods. Worldwide, digital payment transactions are projected to reach $9.68 trillion last year—and could top $20 trillion by 2026.

Today, these payments can be made through online card-not-present (CNP) or contactless transactions, brand and retailer mobile apps, wallets like Apple Pay and PayPal, peer-to-peer payment apps like Zelle or Venmo, embedded Buy Now Pay Later (BNPL) financing offerings, automated clearing house (ACH) transactions, and more. As much as 57% of all consumers now choose to do business with companies based in part on the digital payment options offered.

Yet while most industries have made the technological investments needed to meet this demand, paper checks continue to comprise a significant portion of transactions in the P&C sector. This is a massive opportunity. Here's why.

From basic transaction to strategic differentiator

In an industry that is quite literally built around financial transactions, payments are no longer incidental to the customer experience. They're intrinsic to it.

Today, 85% of consumers prefer digital payment options when transacting, and 95% rate speed of settlement as the top factor for satisfaction. Meanwhile, the consumer segments most familiar with paper checks aren't growing any younger. According to a survey from NerdWallet, many Millennial (ages 28-43) and Gen Z (ages 12-27) consumers don't use checks. So far, at least half of all Gen Zers have never written one—and may never do so.

This is no small matter. According to J.D. Power's latest auto and property claims surveys, longer claim cycle times and complicated digital experiences are leading to lower customer satisfaction scores. What's more, industry reports indicate average churn per customer jumped 5%—costing carriers $540 million in lost revenue—in the two years before the mass consumer shift to digital channels during the pandemic.

Modern digital payments capabilities can create an opportunity to transform the claims experience while generating whole new efficiencies—and competitive advantages—for carriers in several ways, including the following:

Simplified premium payments

Premium payments represent the single most frequent interaction policyholders have with insurers. For all the reasons I've mentioned, being able to make payments easily could increasingly become a must-have for digitally savvy consumers. In response, a growing number of other insurers are beginning to offer options for CNP transactions, mobile wallet payments, pay-by-text, and more. This flexibility and convenience can help insurers attract and retain more customers.

Instant claims disbursement

According to a recent survey from Mastercard and VPay, 60% of consumers report receiving their last claim payment by check, with 50% having to wait three or more days to access the money. So it's no surprise that more than half say they'd be willing to switch insurers to get access to instant digital claims payments deposited to their bank accounts or through "push-to-debit" transactions directly to card or payment apps.

Streamlined operations cost savings

Today, payment processing accounts for up to 28.5% of P&C insurers' operating costs. However, processing and mailing checks can cost 70x more than a digital payment. Whether inbound or outbound, digital payments can help carriers reduce administrative costs, including check processing, mailing, and storage. And because payments are instant, they can improve cash flow by receiving premiums and making claims payouts faster while improving reconciliation, reporting, and compliance operations.

Accelerated product innovation

Major industry trends such as the growing importance of embedded insurance and other alternative forms of distribution, are predicated on digital payments. As technologies like blockchain, AI, and machine learning improve the accuracy, speed, and security of digital payments, insurers can offer more personalized payment options and services. They'll also be able to integrate digital payments with other technologies, such as Internet of Things (IoT) devices and chatbots, creating seamless—and even "invisible"—payment experiences.

The possibilities enabled by digital payments are as compelling as they are urgent. As a growing number of P&C insurers replace legacy systems with flexible, cloud-based platforms, it's reasonable to expect that by 2030, those fastest to capitalize on digital payments will gain significant share over rivals.