Spotlight: Removing the friction from payments

It is a simple fact that technology is evolving faster than humans can keep up. But it is also evident that consumers are adapting – and adopting – new technologies more quickly than their insurance providers.

According to Digital Insurer more than two-thirds (68%) of insurance consumers want to conduct transactions online – yet, today, fewer than 50% of insurers can provide a product or service quote digitally; just over a third (35%) can process a transaction or sale digitally; only 23% incorporate digital into the claims process.

What’s the benefit?

The move to digitalise the industry is partly to bring arcane business processes into the 21st century. Legacy systems have knowingly been hindering business efficiency and their ongoing maintenance costs on resourcing.

Beyond back office operational effectiveness, digital technologies open new avenues of customer engagement that can – and should – improve the experience of dealing with an insurer. Thus, in turn, enhance policyholder retention, loyalty and offers new and untapped opportunities for cross- and up-selling to generate growth.

The gap between what consumers want and what their insurers can provide creates risks for insurers; but also offer up opportunities too.

“Digital channels are less expensive to administer than traditional phone and paper channels, allowing us to pass those savings onto all customers,” says Royston Schmedlin, customer service director of UK retail protection at Legal & General. “Offering digital services alongside traditional channels helps us appeal to a wider range of customers.”

Jen Dallas, UK digital director at RSA, comments that allowing customers to self-serve gives them a more straightforward way to do business and frees up resources. This allows the insurer to spend more time helping customers who need to speak to someone about a more complex problem, such as a claim.

“The ability to offer self-serve at a time when customers are increasingly digitally focused and time poor also supports our brand reputation and customer retention by being seen as easy to do business with,” she says, bringing together the best of the old (personal) and new (digital) approaches.

Where is this going?

All insurers are on a journey to digitising their back end and customer-facing processes.

“RSA customers can purchase personal lines online. Pet policyholders can report first notification of loss but also manage ongoing treatments and repeat medication claims online,” says Dallas.

“We are currently working on digitising our motor claims capability, which will be live soon,” he adds. “From a commercial lines perspective, we provide brokers with the ability to quote online across a range of SME products.”

Staysure’s digitalisation process has been designed to help its customers self-serve digitally,” according to brand director, Rupert Chandler: “We are now able to offer customers the possibility to purchase and renew insurance policies online, as well as submit and manage non-medical related claims online.”

NFU Mutual has recognised that its customers’ behaviours and needs are changing and is halfway through a ten-year project to transform its digital infrastructure.

“E-commerce is growing, and we’ve got a demographic shift in our customer base,” says Bev Mitchell, head of marketing and digital at NFU Mutual.

“Over the next 10 years, we will see farms being handed down to younger generations, and we believe those younger generations will require more web enablement.”

NFU Mutual wants to offer its customers the flexibility to suit how they wish to transact,” says Mitchell. While it intends to maintain a local personal service through its agency network, it will have a full range of complementary digital options.

“Our aim is to make doing business with us easier, and we are developing an online self-serve functionality that will allow customers, where appropriate, to get a quote, make a change, or renew their policy online,” he adds.

What’s the catch?

Well, none of this is easy, at least when you look at the digitalisation project in the round. Some insurers have a greater level of digital servicing than others. It is unlikely that all insurers will be the same, as how they operate will depend on how they conduct business.

High volume, light-touch micro insurance may be best serviced with a digital process, but for some of the traumas presented from life and health policies claims, a chatbot just won’t cut the mustard.

“The digitisation process is done to simplify the customer journey and make it easier to understand the product and purchase their policy,” says Chandler.

“The key challenge is not to overcomplicate the process, forcing the customer to call into the call centre or, even worse, reconsider the sale. Keeping the digitisation process straightforward is the key to making this work.”

Even if insurers don’t overcomplicate things, one of the biggest problems is adopting digital services is convicing customers that they are not missing out on better deals by using these channels over others.

To this end some insurers have made a rod for their own backs.

“Customers have been incentivised to call for years – to haggle on price – and it will take time to reassure them that they can get the best price online,” says RSA’s Dallas.

While the FCA’s new pricing regulations may help get this message over, sometimes face-to-face is simply the right approach.

“We want to ensure we deliver the best customer outcomes and explaining products and services verbally may sometimes be the best way to ensure customers understand what they’re buying and that it suits their needs. We must ensure that anything we digitise offers the same level of customer support.”

Is cash still king?

Even under the old-fashioned insurance model, the most frequent touchpoint between insurer and policyholder was at renewal, which involves a transaction.

This has often been seen as the beginning and end of the ongoing relationship between the two parties. Still, if payments are the most frequent touchpoint, they should be at the centre of the insurance relationship.

After all, at a basic level, the quid pro quo is that if a customer pays a premium to protect against risk, the insurer will pay out if there is a loss.

Given that much of the negative sentiment towards insurers comes from either the price the consumer is being asked to pay or the pain they suffer when making a claim, payments are far more critical than they have been viewed in the past.

Improving the payments experience is likely to improve the customer experience overall significantly. In fact, during the Covid-19 pandemic, insurers saw their trust ratings increase considerably, mainly based on making claims easier and, where possible, frictionless. Much of this efficiency relies on the potential offered by digital payments.

“Incoming payments are already digitised and are benefiting customer experience and operations,” says L&G’s Schmedlin. “It’s quick and easy to make a payment online, and digital payments are less expensive for us to administer.

“Outgoing claims payments, when available, will also have a positive impact on customer experience and operations.”

Advantages and opportunities

Most insurers have changed their view of payments as a simple function and see digital payments as offering strategic advantages to their new digital business model. But they must be sure to provide a range of options. Just as some customers prefer bags of pennies or cheques to pay their premiums, there will be different digital preferences, too.

“With more customers using mobile phones as a primary channel, we need to consider alternative payment methods that are easier to do when using a mobile,” says Dallas.

“Options like PayPal and Google/Apple Pay can be effective in protecting customers while transacting in public spaces and supporting an improved experience, allowing them to purchase with the click of a button.”

But again, this will depend on the sector the business services with direct debit currently favoured by some providers. But just as cards replaced cheques and are now being replaced by a range of different digital devices, so the widely-accepted direct debit may have to yield in the coming years.

But is it safe?

One of the most significant concerns for insurers and their customers must be the security of digital payments.

Fraud is reaching epidemic levels, and increasingly, technology is being used to trick people out of their money. In 2021, there was a 40% increase in authorised push payment fraud incidents – where consumers are duped into sending money to criminals, they believe to be trusted individuals or providers, according to the financial services trade body, UK Finance.

“Our robust customer identification and verification processes protect our customers and the business,” says Schmedlin. “Our technology also doesn’t show the customer service agent any meaningful payment card information to protect the customer’s personal details, and technology partners must undergo regular payment card industry compliance checks.”

Staysure’s Chandler agrees: “The solution to mitigate payment fraud is to work with the correct users and ensure that the systems are updated, and everything is done the right way.”

No longer a question of age

Digital payments can provide more secure transactions, but customer buy-in has often been a question of demographics.

Older customers have been slower to adopt technology in the past, as they are less comfortable with the detached interaction than the ‘digital natives’ of Generations Y and Z.

That is changing, not least through necessity during the pandemic. Banks are closing more branches as they digitise their own offerings. Banks are also running projects to familiarise older customers with digital payments. This is not altruism but cold, complex business logic. Unless they can convince their older, wealthier customers to embrace digital, they’ll see the impact on their bottom line.

“This isn’t an issue as we always give them a choice,” says Will Paskins, head of digital customer journeys at Zurich. “Our focus is always to make our processes clear and personal for all our customers.”

This multi/omni channel approach allows customers to interact with whichever service they prefer, whether live chat, phone, or video call.

Paskins says his customers are not selecting a pathway based on their demographic: “We haven’t found this to be just a question of age,” he says, “as we’ve had some lovely feedback from people in their 70s and 80s who love our online capabilities.”

The future is digital – get used to it

This brings us back to the business culture and insurers giving their customers what they want and need.

Digital payments seemingly offer many more opportunities for insurers to build relationships with customers – while gathering invaluable data – but how that is done and how fast that happens should be dictated by them, says Paskins.

Some are more willing to adopt new technology than others, and all insurers can do without prescribing a specific approach is to encourage a digital pathway.

Ultimately, digital payments will dominate, having picked up considerable momentum since the start of the Covid—19 pandemic. Cashless payments exploded during the lockdowns and are set to more than double in Europe between 2020 and 2030, according to research by PwC.

This is being replicated worldwide, with the rapidly expanding markets in Africa and Asia anticipating an increase of cashless payments by a factor of more than 3.5. So with 68% of customers already expressing a desire to transact insurance online, those companies that successfully integrate digital payments to make these points of interaction truly frictionless will be the ones to potentially reap the benefits. 

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