Anyone running an insurance or claims organization should closely read the Federal Reserve's latest findings, released in July as part of its triennial payments study.
None of that is surprising by itself, but what deserves more attention is what it implies for an industry where a large share of claims dollars still move through paper checks, a payment method the rest of the economy has already largely left behind. That gap says less about payment preference and more about how far behind the systems connecting claims and payments have fallen.
The pressure isn't only coming from the market. Regulators are moving in the same direction. Pennsylvania now requires insurers and self-insured employers to offer injured workers direct deposit for wage-loss benefits, with full compliance required by the end of this year. At the federal level, an executive order signed last year directs federal agencies to phase out paper check disbursements across most government payments, citing fraud, cost and delay as the reasons. Neither rule was written with claims organizations in mind, but the direction is unmistakable. The paper-based infrastructure carriers still lean on is being phased out by the institutions that once relied on it most.
The real gap isn't the payment method, it's the concentrated risk
It's tempting to read the Fed's numbers as a simple suggestion to move claims payments off checks and onto digital methods, and that's part of the answer, but it undersells the larger opportunity.
As routine, lower-dollar transactions across the economy have already moved to digital methods, the checks that remain increasingly skew toward higher-value transactions, claims payments among them. That shift changes the economics and the risk profile of every check a carrier still writes.
That shift shows up in three concrete places: rising fixed costs spread across fewer checks, since printing, mailing and stop-payment processing don't scale down with volume; fraud risk that concentrates as the remaining pool of checks skews toward higher-value transactions; and heavier escheatment and reconciliation work whenever one of those higher-value checks goes uncashed.
Policyholders experience a related but separate consequence. Someone used to receiving money instantly elsewhere in their financial life notices when a claims payment takes a week or two to arrive by mail, and that gap between expectation and experience has only widened as digital payment methods have become the norm everywhere else.
Fixing this isn't really about finding a smarter way to pay a claim. None of it requires AI to replace adjusters or automate decisions that call for human judgment either. The more realistic near-term opportunity is visibility: connecting the data that already exists across claims, finance and the carriers, TPAs and banks handling disbursement, so the patterns behind which claims are more likely to land in that fraud-prone, escheatment-heavy tail can actually be seen and acted on before a check goes out.
Right now, that pattern usually only surfaces after a check sits uncashed for months or a fraud team catches it after the fact, largely because the parties involved in a given claim's payment rarely share a common view of its history in the first place.
Closing this gap means connecting claims and finance across the whole delegated network
The fixed-cost, fraud and escheatment risks described above all concentrate at the same point: where claims and finance functions, or the carriers, TPAs and banks handling a claim's disbursement, aren't working from the same information.
A claims team evaluating urgency and a finance team managing settlement risk are often looking at different pieces of the same payment, and a TPA disbursing funds on a carrier's behalf may have even less visibility into the risk profile of what it's about to pay. Over the next several years, expect the carriers that close that gap, giving claims, finance, and their delegated partners a shared view of a payment's risk before it goes out, to absorb meaningfully less cost and risk from their remaining check volume than those that don't.
The value of the Fed's data here is that it comes from outside the industry and has no stake in the argument. It isn't a case for urgency built by a vendor. It's a record of where the broader economy has already gone, and a useful benchmark for any leader deciding where to prioritize the next investment in connecting claims and payment data. Insurance doesn't need to lead that shift, but it does need to stop treating its shrinking pool of checks as business as usual, especially when the data needed to manage the risk inside that pool already exists inside most carriers' own systems.
Carriers that treat this only as a payments upgrade will miss the larger shift taking shape. The ones that treat it as a shared-visibility problem, one that claims, finance and their delegated partners can solve together, will be the ones that end up setting the pace for the rest of the industry.
