APIs and IoT and Bots, oh my!

February 7, 2021

By John Knotek, Vice President Operations – Payments, InsurePay

As a long-time vendor and follower of the property and casualty insurance industry, it is simply amazing to see the breadth of industry incumbents’ initiatives and startups looking to make insurance better.

Better being the operative word.

I find that words like broken and disruption tend to be overused for self-serving purposes by new entrants. In my humble opinion, the insurance industry in Canada is far from broken. There are a lot of good people doing a lot of good things. For the overwhelming majority of insureds, there is wide access to insurance options and legitimate claims get paid.

While no doubt new initiatives like real-time monitoring of risks, automated handling of quotes and new products will make insurance better, most are focused at the front-end of the insurance experience. However, much like in the well-known movie the Wizard of Oz, when you pull back the industry curtain, things are not quite as sophisticated or efficient throughout as the front-end initiatives would have you believe. There are still a lot of system gaps, manual data entry processes and spreadsheeting exercises happening.

One such area is the entire payment and reconciliation process between brokerages and carriers for agency bill settlement as well as for direct bill advances done by brokers. The overwhelming majority of these payments from brokerages to carriers are still done by check accompanied by a paper report. Yes, this multi-billion dollar industry is still heavily attached to the check despite this payment vehicle being virtually obsolete with personal consumers.

Why checks and manual reports?

Several reasons. The first of which is carriers receive up to thousands of payments from their brokers each month. With this volume, having the information with the payment is critical so that policies are recorded appropriately as paid. Historically, a report stapled to a check was the best way to do this. Secondly, checks and manual reporting have been the way it has been done and some carrier processes revolve around actual check handling. Third, few carriers accept plain electronic funds transfers from brokers for both agency bill and direct bill advances. Because brokers want one way to pay, many have continued to pay all carriers with checks. So while payments and related reporting in the industry are working, they are being done in the most inefficient and least secure manner possible.

Ok so payments and reconciliation aren’t broken, so why change?

The need for efficiencies in the industry is increasing. Brokerages and carriers need additional resources to invest more in front-end initiatives to better attract and serve customers. For carriers, parts of processing areas are understaffed and there is the increasing need to gain efficiencies to help offset the large investments necessary to move off legacy systems. As a popular saying goes, the back office is where inefficiencies go to hide. So let’s pull back the curtain so to speak on some of these inefficiencies.

Generating and printing checks:

Sounds trivial, but there is a genuine time and money drag with checks. The actual cost of buying checks is not going down and having the necessary printers and software to print these items is another cost that adds zero value to the brokerage. Handling inbound checks is also manual and subject to misplacing or depositing before the value date. Does it make sense to cut a check for $5.01? How about $2.9 million? Neither makes common sense in 2018, yet the industry is doing it.

Chasing down signatures:

For those that might be trying to up their Fitbit steps per day this may be a good thing. However, these people likely have better things to do than run around the office or make phone calls to get a signature for an urgent payment. Delayed authorizations from this can then in turn delay receipt of funds.

Generating remittance advice:

The repetitive process of going into a broker management system, generating, printing and mailing/emailing a report for every, single, payment.

Non-value added communication:

Where in the insurance value chain does inquiries about payment or report status add any value for carriers or brokers? Where is your payment? What is the payment for? We don’t have the payment report, send it again. The report doesn’t match the payment. We have no record of payment for that policy. Just ask any payables person about the volume of inbound inquiries on payment or report status and chances are that you will get an eye roll.

Security:

Quite simply checks are not secure. This is both from a potential fraud perspective as well as a knowledge of where the payment is. While you can track the shipping status of a package half way around the world you can’t track the status of a check or whether it was cashed by the intended party. Also, sending reams of policy holder personal information in the mail or through unsecure email is subject to interception.

Manual recording and reconciliation:

Receive report. Record payments. Mark discrepancies. Repeat.

Copy and pasting information into a carrier specific template:

Taking information from one spreadsheet, sorting, resorting, deleting, copying and pasting. Repeat.

Manually receiving, sorting and filing of checks:

Millions of dollars of checks are stored in cabinets, drawers or perhaps safes before the check date is valid. For weeks.

If you are issuing or receiving only a few checks a month, then the above noted inefficiencies are likely not a big deal. However, if it is fifty, a hundred or even thousands, the inefficiencies quickly add up and accelerates the need for innovation.

This is where innovation isn’t always just about something new or disruptive, but rather incremental improvements that can bring success to brokers and carriers alike. Eliminating repetitive tasks that no one likes to do improves the employee experience and frees up time that can be better utilized towards broker-carrier relationships and enhancing the customer experience. The opportunity to do this is not something that is somewhere over the rainbow, it is here today.