Insurance companies are crucial in helping consumers with essential needs. They may provide funds to cover significant emergencies such as major medical procedures, home repairs following a disaster or replacing a car totaled in a collision. However, the slow payment practices within the industry hinder timely access to these funds. This, in turn, forces customers to pay out of pocket or incur major debt while they await compensation.
Leveraging real-time rails for these disbursements may seem like a straightforward solution. Still, deployment can be daunting due to high implementation costs, transparency issues and many other factors. Insurance companies are forging partnerships with FinTechs to accelerate these payouts despite these challenges.
The “Money Mobility Tracker®” examines the opportunities and benefits that instant payments offer to insurers and their customers, the barriers impeding their adoption and the partnerships insurers and FinTech are forging to facilitate their implementation.
Cost and Transparency Hinder Implementation of Real-Time Insurance Payouts
Real-time payouts could be a significant boon for insurers and their customers. However, obstacles such as implementation costs and unclear processes impede adoption, especially for smaller insurers.
A recent PYMNTS Intelligence study found that various factors led to insurance firms’ reluctance to adopt real-time payments. Six in 10 of these companies cite the high cost of implementation, with 82% of small insurance providers sharing this concern. Roughly half of small firms expressed worries about the increased risk of fraud or data theft, while 32% raised concerns about the lack of transparency in payment processes. Despite these reservations, 87% of small insurers lag in adopting instant payment plans to incorporate more real-time payment features in the year ahead.
Insurance Providers Make Real-Time Payment Plays
Despite the challenges inherent in instant payment systems, many insurers are making moves in the real-time space. Large firms have found more success in this space than their smaller counterparts.
In a recent study, 69% of large insurance firms surveyed emphasized the importance of real-time payments for their business. Just 33% of their smaller counterparts shared the same perspective. Most small insurers use real-time payments for conducting business-to-business (B2B) transactions, instead of making direct payouts to claimants. Among the insurers that already receive real-time payments from other businesses, 82% highlighted the importance of maintaining strong relationships with partners as a reason for doing so. These insurers also widely cited high reliability and improved cash flow management as benefits of instant payment implementation.
Improving Insurance Payments Through FinTech Partnerships
Implementing real-time disbursements can be a formidable challenge for insurers’ accounting teams. Consequently, many are forging partnerships with FinTechs to tackle this demanding task.
According to a recent study, 82% of large insurance carriers and 77% of small firms will likely enlist the help of FinTechs to fulfill their real-time payments ambitions. The study also shows that while nearly 81% of all carriers favor partnering with FinTechs to integrate instant payment capabilities, roughly 6 in 10 also prefer national brands such as PayPal or Stripe — referred to as “digital giants” — to handle this task.
Insurers are furthering these partnerships by teaming up with FinTechs on embedded insurance offerings. This move accommodates the growing interest in nontraditional insurance arrangements around digital purchases such as airfare or concert tickets and consumers’ preference for instant payouts on claims. As these products become more ubiquitous, more financial executives recognize their substantial revenue potential and their role in fostering customer trust. According to a recent study, 81% of global financial executives predict embedded insurance will quickly morph from a “nice-to-have” to a “must-have.”
