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Transforming the Insurance Cash Flow Ecosystem: How ISO 20022 Underpins Data-rich Instant Payment Capabilities

Eric Fenton

Senior Manager, Insurance Business Consulting, EPAM
Blog
  • Insurance

With millennials and Gen Z, insurance carriers today are dealing with younger, more digitally savvy customers who are driving demand for faster, data-rich payment processing. The carriers that integrate instant payment providers (PayPal, Venmo, Samsung Pay, Amazon Pay and now Facebook Pay) into their workflows will satisfy their customers’ demands for digital payment options, but high-speed transactional back-end reconciliation processing is still lacking. Transforming the front and back office allows carriers to resolve key challenges in premium collection, commission payments, receivables/payables and claim settlements. However, this is only possible when combined with data-rich payments underpinned by the ISO 20022 payment standard. Let’s unlock three tangible next steps and dig into four applicable use cases to begin your journey of cash flow transformation.

The Insurance Cash Flow Ecosystem

The current state of the insurance cash flow ecosystem, owned by the CFO and Treasury Operations, includes a mixture of manual, semi-automated and automated processes. For personal lines, the focus is on positively influencing the customer experience, whereas commercial lines tend to focus on back-end efficiencies of reconciliation. Currently, point solutions and platform providers lead the way by supplying the mechanics for payments, while financial institutions process these transactions through a vast network. Offering prospects/policyholders access to instant payment providers enables a more connected, digital-first experience. Meanwhile, accelerating the front end creates additional pressure for the back-end reconciliation, requiring a more robust integration with your financial institution partner(s).

Tactical Step 1
Ensure you have a complete picture of your payment processing ecosystem by developing process maps. Include timings to evaluate how long your process takes from end-to-end compared to your service level agreements (SLAs). Then, you can more easily identify the bottlenecks and areas of focus to match the pace of transaction expectations.

ISO 20022 & Its Role in Transforming Insurance

ISO 20022 is a data-rich payment standard that allows for the combination of financial data with non-financial data together in a single payload. As the long-awaited deadline approaches in July 2022 (extended due to COVID-19), more financial institutions and carriers alike have begun to prepare for ISO 20022 compliance. India and parts of APAC have led the way with full adoption, while the UK and US have lagged behind. In due time, the financial services industry will switch to this newer standard, and carriers will want to embrace this regulation to benefit from cost reduction, faster payment reconciliation and improved customer experience.

As the industry begins to evaluate the integration of instant payment providers, now is the most opportune time for carriers to understand what internal applications, systems and processes are responsible for payment transmission and assess their compliance. Identifying key data elements that span your current systems and processes can provide the integration glue across your payment ecosystem. These values will become the metadata wrapping all future payments.

Tactical Step 2
After communicating the urgency and awareness of ISO 20022, leverage an ISO 20022 sandbox to assess, plan and accelerate your adoption and onboarding.

Instant Payment Capabilities & the Customer Experience

Waves of digitally-native generations are pushing even the most innovative carriers to act faster to meet their expectations. Those that have yet to deploy a real-time or near real-time method of premium payment or payout during the customer experience (CX) journey are already trailing. Why? Consumers are looking for digital means of connected commerce. Applying a digital-first experience with seamless integration of industry-leading payment providers establishes a connected relationship with the prospect/policyholder through the buying and claims experience. However, concerns still exist around the potential for misdirected payments. Options like minimal test deposits to confirm the proper payee, what Paypal does for instance, can be applied as a safeguard.

Tactical Step 3
Gain a retail market assessment or perspective with an ‘insurance lens’ that focuses on consumer demands for payments in the customer journey. This provides the foundation needed to establish a strategy to meet user expectations of today and tomorrow.

Breaking Down Four Use Cases

Now that we’ve highlighted your next steps, let’s dig into several use cases where data-rich payments that leverage ISO 20022 can solve current challenges in insurance:

  1.  Accelerated Premium Collection
    Distribution and sales leaders want to process premium collection in an efficient manner to gain market share from the digital generation during the customer acquisition lifecycle. Today, premiums are collected in cash, check or debit/credit card, and the integration layer leverages a look-up/key value to link the payment to the policy. This is working successfully, but the process can be slow. With the additional data, payments that are ISO 20022 compliant allow carriers to reconcile payments quickly and push requests if payments are unsuccessful or inaccurate. As carriers increase their direct-to-consumer (DTC) capabilities, the necessity to reconcile the distribution and payment methods (touchpoint, platform, policy/holder details) will continue to ramp up and demand more from existing platforms and systems. These steps toward clarity will provide a propensity to bind, which is a key metric to directly improve the workflow.
  2. Commission Payments
    Retaining your most valuable agents and brokers requires differentiation, creativity and innovation; and front-loading and/or offering the full year of commissions post-sale could make a huge difference. While most agents and brokers live off the commission from their efforts, the traditional payout schedule still spans 30 to 90 days, so same-day compensation is ideal. Optimizing cash flow is one answer to retaining and extending the longevity of your sales force. Leveraging data-rich premium payment capabilities means that carriers can validate sales more quickly and provide faster commission payments through their distribution networks. This brings same-day sales and payments closer to a reality! Finally, motivation can be driven with instant processing through a ‘leaderboard,’ whereby policy and commission reconciliation is completed and displayed in real-time for healthy competition among the field.
  3. Receivables & Payables
    Owned by the insurance treasury operations, the inner workings of receivable/payable departments include a complex integration of multiple platforms linked together with manual processes. The use of intelligent ingestion and decision automation has addressed the speed and accuracy of consumption, but not the reconciliation efforts. Including additional metadata around a payment into and out of a carrier lays the groundwork for maximum efficiency within the treasury lens. Utilizing additional metadata wrapped with digital payments replaces keystrokes with automated reconciliation, resulting in minimal or zero human intervention.
    Today, when a reversal of payments is required, it is handled manually. With ISO 20022 and knowledge of customers’ preferred payment providers, carriers have the ability to request a payment if overpayment has been applied to a policyholder. Additionally, if there are insufficient funds during the premium schedule, the carrier is able to push a request to the policyholder notifying them of non-payment and request funds as an ‘instant invoice.’ This opens the door for faster corrections without interrupting convenience for the customer and the carrier.
  4. Claim Settlements
    Chief Claims Officers and product owners alike are not traditionally focused on faster settlements during the claims value chain. When it comes to CX, customers are primarily concerned with how quickly they will be paid. Do you know how much time transpires from the initial notice to the payout? How are these settlements made, whereby funds are provided to the claimants’ financial institution in a timely manner? Reserves and settlements are electronically grouped, queued and submitted by platform players to sponsor banks. This workflow is generally run through a series of manual interactions between systems and resources, resulting in SLA’s being commonly missed. Claims stakeholders often overlook the relationship of accelerated settlements to Net Promoter Scores and customer retention. A policyholder’s ability to note their preferred payment provider via a self-service portal results in a more consistent, higher-quality experience—from premium to claim. Hence, enhancing the claim payout experience has a direct relation to increased market share.
Summary

It is an exciting time for the insurance industry with so much activity around transformation and innovation. To remain ahead of this industry-wide shift, carriers must evaluate their current state around the ecosystem for which cash flows with process maps. Understanding your challenges provides the groundwork to initiate transformation. Once understood, applying the customer’s perspective and expectations relative to a digital-first, instant payment capability throughout the journey is an important next step. Finally, integrating data-rich metadata held within ISO 20022 provides the glue to front- and back-end systems, resulting in faster reconciliation, a higher Net Promoter Score and more significant cost reduction overall.

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