By John Knotek, Vice President Operations – Payments, InsurePay
A re-post article from ORBiT Canada May 2015 Newsletter
The P&C industry is a complex ecosystem with many moving pieces for brokers and carriers alike. Despite the inherent complexity there has been substantial change and will continue to be more. There is one process however that remains much the same for brokers, one that originated in the 11th century, checks.
Today the majority of brokers continue to pay carriers by check. Brokers are not alone as checks still remain the dominant form of payment for business to business (B2B) transactions in Canada today.
With all the advancements in electronic payments, how can this be?
When contemplating the answer to this question many will relate to personal experiences in which you cannot recall the last time you used a check. Many millennials might not have ever written a checks (perhaps as there is no touch screen feature). The fact is that the overwhelming majority of personal payments today are made by debit, credit, cash and more recently, payment enabled phones. So why is this?
The answer: simplicity and data.
When you went to buy your favorite beverage before the weekend, the total came up on the register and you paid. You likely didn’t question the amount, compare your list of items with the cashier’s list, or choose to pay less than the register indicated. It is a simple transaction-you pay and walk out. The primary advancements with this type of transaction have been to speed up the movement of money from one party to another. Simple.
The B2B world it is vastly different. Invoices are sent which payors then review to perhaps find that seven skids of product were invoiced but only six had arrived or there was a discrepancy in timing for services rendered or obvious billing errors. The payor then remits their payment amount, which may differ from the invoice and sends along data that explains any discrepancies.
This is where checks have the advantage over existing electronic payments which cannot have unlimited data attached. By way of a staple or clip, payors can attach unlimited pages of data, data that suppliers need to receive with the payment to reconcile their receivables. In the P&C industry, given the complexities that exist for payments, there is the ongoing need for brokers to send rich remittance data to carriers in tandem with payments. Hence, it should be no surprise that checks still dominate in broker to carrier payments.
Unfortunately, when examined with a critical lens, using checks is ridiculously time consuming and hence expensive for brokers to use. The time and expense associated with buying and administering checks, chasing down signing officers when urgent payments are required and shipping all add up. This is time and money that brokers could instead use towards enhancing customer service and new sales. As well, checks are the easiest form of payment to intercept and alter or counterfeit. Quite simply, you do not want to be exposed to this type of crime.
So brokers take a careful look at your payments process and ask if your methods of paying carriers and sending data are easy, inexpensive and secure. In looking at alternatives, consider how any new process fits into existing work flows and ensures that money and data move together in one step with real time notifications to carriers.
