My father-in-law drilled this mantra into me during my early years in the insurance business: "The sale is not final until the check clears the bank." Getting paid for the insurance policies an agent sells is a crucial part of running a successful insurance business.
The way agencies have handled the payment process has not changed much: Create and send an invoice, receive a check in the mail and deposit it in the bank. Direct bill moved some of the burdens of collecting money to the insurance company, but at the same time transferred some of our clients' loyalty from the agency to the insurer.
Consumers are demanding more payment options than ever before. These changing expectations of your clients require you to think about the way you receive money for the policies you sell.
According to the latest New York Federal Reserve study on non-cash payments, the use of paper checks has dropped from 37.3% of transactions in 2003 to 18.3% in 2012 (the latest year available). The use of debit and credit cards has correspondingly increased from 15.6% in 2003 to 47.0% in 2012.
Mobile Payments Are on the Rise
For the past decade, payment companies have been trying to determine how to take advantage of mobile devices to make the payment process easier. After some false starts, viable mobile payment options are gathering steam. Worldwide mobile transactions totaled $235.4 billion in 2013, a 44% increase from $163.1 billion in 2012, according to the tracking firm Gartner. It projects a 38% jump to $325 billion in 2014.
Mobile device payments now account for more than 11% of payments in U.S. and Canada stores. Starbucks customers can download the company's app to their phone, load it with a credit or debit card, and pay at most of the coffee chain's 11,437 U.S. locations. They open the app, tap Pay and wave their phones under a scanner at the counter. I use the app to pay at Starbucks and as a bonus receive a gold star as part of its reward program. After 12 Gold Stars I earn a free drink—a great example of increasing customer engagement.
Other merchants have implemented variations on the Starbucks model. Sandwich chain Subway doesn't have specialized scanners at its 26,000 U.S. locations, but registers can print barcodes that customers can scan with their phone camera to authorize an online payment. Chipotle Mexican Grill's app helps customers order from the road to avoid standing in the chain's long lunch-hour lines.
In addition to reducing barriers to payment, the options provide these retailers a much better way to connect with their customers. It also gives insight into customers' long-term purchasing behavior.
Apple's announcement of the availability of Apple Pay on the iPhone 6 and 6 Plus—using Near Field Communication (NFC) chips in the phone—will continue the trend away from paper to electronic payments. PayPal, Square (the little white dongle you add to your phone or tablet to swipe a credit card), Amazon payments and Google Wallet are all examples of new payment channels your insurance agency should explore.
Bring mobility to the agency
Frequent contact and engagement between your client and your agency occurs when paying policy premiums. Payment transactions are 4 to 10 times more frequent than any other type of transaction.
Insurance companies introduced direct bill payment a number of years ago. Policy premium invoices now come directly to the policyholder from the insurance company. The payment is mailed directly to the carrier, or the policyholder visits their websites to make an electronic payment. Due to this process, insurance agents have lost the ability to engage with their customers during payment.
Many agencies try to streamline electronic transactions for their clients by creating a payment page on their agency websites. This page lists insurance companies represented by the agency and provides links to the carriers' electronic payment portals. Because each insurance company has its own method and process for accepting online payments, the agency client has to learn to navigate the process for each. This includes individual user logins and passwords for each different company. This can be extremely cumbersome for the client, which does not create a great customer experience.
One possible solution is for a trusted third party entity to create a payment hub or payment portal. The agency would send its client to the Hub where payment information is requested from the insurer. The electronic payment would be processed by the third party and notifications sent to the client, agency and carrier. This joint payment gateway would help create a much better customer experience.
Instead, your agency can offer its branded online payment options. This could include a "thank you for your payment" confirmation page with coverage upgrades customized to their accounts. Or, you could ask clients if they want information on additional insurance products they don't currently purchase.
The payment process is complicated. It won't be easy to make changes. The insurance industry—both companies and agents—needs to work together to create a better way for consumers (both personal and business) to pay for their policies using their preferred payment methods. The industry needs to find a way to accept electronic payments as soon as possible.
Mobile technology is revolutionizing the global banking and payment industry at a rapid pace. These changes do offer new opportunities for engaging with your clients—if you're willing to take advantage of them. To help you understand the complex issues that the industry faces in order to create electronic payment options, I have created a detailed white paper titled "It is Time to Update Your Payment Process," available at steveanderson.com. This white paper will help you gain a better understanding of the payment industry as well as the opportunities the insurance industry has to accept electronic payments.
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