The insurance industry is experiencing rapid transformation in an increasingly global economy. Digitisation of the retail sector in particular means customer expectations of the insurance industry are also shifting. Consumers expect speedy claims payment delivery and transparency into this process and insurers are realising that loyalty is no longer a given in an industry where immediacy and overwhelming choice is becoming the norm.
Insurance pay-outs are often cross-border in nature and this brings its own set of challenges.
We take a look at the top 7 challenges insurers face when making international payments and how your business can overcome them:
- The paper quagmire >
- Managing risk & payments fraud >
- Inefficient payments process >
- Validating bank details >
- FX risk >
- Costly intermediary bank fees >
- Reconciling payments >
- Conclusion >
1. The paper quagmire
Even in these times of technological change, many insurance businesses still operate in a paper intensive environment. From underwriting and documentation to follow up correspondences, everyday processes still heavily rely on paper.
In the last mile of the claims process, the payout, many beneficiaries still receive payment by cheque. This is fine, but the costs of processing cheques for payment and associated costs like postage soon add up, not to mention the time intensive and error prone nature of in-house cheque processing. Cheques can also get lost in the post leading to costly reconciliation.
The solution: It is inevitable that many beneficiaries will still want to receive payment by cheque. If you are still processing these in-house, you may want to outsource your operation to a payments services provider that will process the printing of cheques and deliver payment on your behalf.
Outsourcing enables a company to combine cheque and electronic payment transactions from one secure payments file for the seamless delivery of cheques as well as Sepa, wire, and domestic ACH payments. You can automate payments without having to purchase or administer software and the time and cost savings can be enormous.
2. Managing risk & payments fraud
The manually intensive nature of the insurance payout processes and reconciliation means that fraud is one of the major concerns for the industry. When moving large sums of money on a regular basis, insurers need to not only protect client funds but also the integrity and reputation of the business itself.
Any incident of payments fraud has the ability to cause irreparable damage to a brand and in the worst case scenario, close a business permanently. Even less sophisticated methods of defrauding can have devastating consequences. An Edmonton, Canada university was defrauded of $11.8 million in 2017 after staff failed to call one of its vendors to verify whether emails requesting a change in banking information were legitimate.
It is also growing more challenging for insurance companies to manage financial crime risk. Global anti-money laundering (AML) and counter-terrorism financing (CTF) regulations have grown more complex and severe in recent years.
The solution: Your global payments process needs to be quick but more essentially, secure. Your reputation depends on the latter. Safeguard against fraud loss and strengthen internal processes by choosing a payments provider with a reputation for secure payment processing, including cross-border.
In particular, look for a partner with process security management certification. At a payments platform level, enquire about role-based permissions which help enforce segregation of duties by configuring who can initiate disbursements, fund accounts, create approval flows, run reports, and more.
3. Inefficient payments process
With so many payments to policy holders, partners and overseas subsidiaries, insurers can often find themselves on the back foot when it comes to the global payments process.
Logging on to multiple bank portals to key domestic and international payments can be a drain on already over-stretched resources and when reconciliation is a manual task, the costs in terms of time and money become more obvious.
It doesn’t help that outdated payment architecture and over-reliance on legacy systems are stumbling blocks in an industry that needs to balance customer satisfaction with reaching profitability targets.
The solution: Better payment disbursement platforms will automate and streamline the payments process, reducing time spent on administration and other manual tasks that impact profitability. Companies should also evaluate cloud as a platform for their modernized payments systems. Cloud can provide carriers with added agility and flexibility to meet future global payment requirements.
For high volume international and domestic payments, choose a payments partner that offers an integrated solution with existing accounts packages. This mitigates errors caused by manual processes, speeds up the payments cycle, offers managers complete transparency on all payments and automates reconciliation for quick close.
4. Validating bank details
Payment accuracy is high on the list of almost all insurance companies and in particular when it comes to international payouts. Given the time sensitive nature of these disbursements, straight through delivery is important. Inaccurate data and manual management of your EFTs results in returns and repairs that increase costs and risk across your entire organization.
IBANs (International Bank Account Numbers) are often more than 22 characters long and errors arise when these are submitted and entered into a banking system incorrectly. Invalid payment data means failed payment delivery, disgruntled customers and incurred costs on payment retrieval and reissue.
If the payment is cross border in nature there is the added headache of FX margins applied when the payment is returned.
The solution: Choose a payments service provider that has bank validation functionality as one of its core offerings. All beneficiary bank details are validated against a live database before payments are submitted to the international banking system. This eliminates errors and stops the misdirection of payment as you now have the opportunity to correct details before all transactions are initiated.
Payment failure is also less likely to occur if payment files are exported from your claims management system to a payments platform, rather than manually inputting details to the system. This reduces errors, saves time and money and allows for the reallocation of staff to more pressing or strategic tasks.
5. FX risk
The nature of making international payments, whether to overseas claimants, partners or international offices means there will inevitably be a foreign exchange element to many transactions. Beneficiaries like to be paid in their local currency but the FX market can be volatile.
From the time a claim is made to actually paying out, a shift in the currency market could end up costing more than anticipated. For example a 1% move could cost a UK firm making £200,000 worth of claims payments in euros, an extra £2000.
The solution: Reduce your foreign exchange risk by using currency risk management tools offered by the more reputable payment services providers. These payment instruments include forward contracts which allow the fixing of the exchange rate on a pre- determined sum of currency over a period of time.
You could also avail of foreign currency accounts held by many providers allowing the transfer of funds to these at the time a claim is made. Once it comes to making the overseas payment, the exchange will be automatically fixed so there are no nasty surprises.
6. Costly intermediary bank fees
International payments are often routed through intermediary banks. An intermediary bank is often needed when international wire transfers are occurring between two banks, often in different countries that don’t have an established financial relationship.
How is this potentially problematic? Each intermediary bank may charge a fee for forwarding a payment as it passes through their system. Your beneficiary in return may not receive the full amount and ultimately receive less than expected.
Further payments will need to be sent creating additional work for your team and you are likely to incur the additional costs of payment fees and any FX margin applied. This simply creates friction between payer and payee, negatively impacting your reputation for operational efficiency.
The solution: Ask your international payments provider if intermediary bank charges are included in their fee. If so, this will mitigate any problems surrounding additional fees and guarantee that the full amount is delivered to your beneficiaries.
When referencing payment fees/transaction charges your payments provider will send payments with charges ‘SHA’ (fees shared) or ‘OUR’ (ours). When payments are indicated SHA, the payer will pay all fees charged by the sending bank and the receiver will pay all fees charged by the receiving bank.
When payments are sent indicated ‘OUR’, the payer will bear all of the payment transaction fees so that the beneficiary receives the full payment amount. Although your bank charges will be higher, weighed against the prospect of irate claimants and beneficiaries, your business will be better off in the long term.
7. Reconciling payments
Every insurance business finance department might reconcile accounts in a different way but one thing is clear, paper processes are a problem.
Miscalculations due to manual input of data, data security issues and misplaced files are commonplace in paper intensive payments environments.
Even today as more businesses are turning to emerging technologies, many are still trying to stitch countless spreadsheets from different bank statements and invoice details to reconcile payments.
The solution: Insurance providers need clarity and security when it comes to payment reconciliation. Automated solutions combine payment methods and currencies into a single file and are readily available for finance managers to access 24 / 7.
Ask your payments provider about how it can create better reconciliation efficiency for your business. An automated solution will ensure instant reconciliation with a faster financial close cycle whilst improving cash flow visibility. You will also reduce potential fraudulent pay-outs and improve working capital management.
Faster and more convenient payment disbursements can only be realised when Insurance providers start to embrace the technologies that are reshaping the future of payments. As businesses are becoming more global, these technologies will be more relevant as the cross border payments element will demand a more streamlined process for faster, easy to track and secure disbursements.
Inaccurate data and manual management of your global payments processes results in returns and repairs that increase costs and risks to your business. The Fexco solution for insurers validates all account details before payments are made, eliminating errors and costly returns and realises straight through processing rates in excess of 99%. Talk to our Insurance specialists about how Fexco can provide a seamless and cost effective payment solution for your business.